UNDERSTANDING YOUR TIME/SPACE FORMULA

PART TWO - TIME

The other component in determining your Time/Space Formula is time. The IRS has established a Revenue Ruling 92-3 which attempts to address the issue of allocating time. Section 280A (C) (4) (C) of this ruling states that "if a portion of a taxpayer's dwelling used in the daycare business is not used exclusively for daycare purposes, the amount of expenses attributable to that portion shall not exceed the amount that bears the same ratio to the total amount of the items allocable to such a portion as the number of hours that portion is used for such purposes bears the number of hours the portion is available for use."

What a mouthful! And they wonder why taxpayers have a difficult time complying with their rules!

This ruling is trying to state that as a home daycare provider, you need to track the total hours in a day and the total hours your daycare is in operation during that day.

You need to record the time that the first child arrives and the time the last child leaves each day on some sort of time calendar which will be kept with your tax documents at the end of the year. Any time that you spend before you open, after you close, on the weekends or on holidays can be used to increase this time component which will help reduce your taxes.

Activities could include time spent on your activity and meal planning for the daycare, time spent cleaning the daycare area in your home, time spent creating an advertisement for your daycare, or time spent speaking on the phone to a parent of a child in your care.

In order to increase your time allocation, all these activities must happen before or after your regular business hours. The more time you spend in the operation of your home daycare, the greater this time component will become and the greater tax savings you will realize.

Once you have recorded the hours your daycare was open for the year, you need to divide it by the total hours available in a year. An example is listed below:

4512 Hours of Daycare Operation divided by 8760 Hours in a Year= .5150684

You are in > Home > Articles > Mommies > Brigitte
Click here to read more articles from this author

---

About the Author:
All articles ©Copyright 1999 Brigitte A. Thompson Brigitte is the President of DATAMASTER, LLC and has been providing accounting, bookkeeping, income tax and payroll services since 1992. She has also operated a home daycare for years and has written a book for providers :
The Home Daycare Complete Record-keeping System