Daycare Tax Tips

The Time/Space Percentage May Not Be Right for Every Home Deduction

Other percentages are allowed

In a follow-up to her previous question regarding outdoor space, the child care provider continues:

> Thank you for answering my question about yard space so quickly. Your answer does make sense. Now my question is about deducting utilities...the kids use lots of water outside (water tables, water fights, etc) a good 6 months out of the year, so I feel that that would deduct as a business expense? How does that factor in if the formula for utilities is only based off of the actual space used in the house? On a side note: I passed your answer about square footage along to my friends in child care who do count yard space in their time/space formula. One of my friends said her accountant actually came out and measured her house, backyard, and front drive for her taxes?? He said that it was because during business hours that space is used by the kids and parents?

You are not required to use your time/space percentage for all of your shared expenses, if that percentage does not accurately reflect actual business use. I have another client who says that a much greater percentage of her total water usage goes to child care activities than would be allowed with the time/space percentage. She came up with another percentage and you can do that, too, but you must have some documentation to back it up.

You could count child care heads versus your family head count during the day to determine the amount of water used for hand washing and toilet flushes. (You can also count employee water usage, but not your own, even during business hours.) You could count your water play days and estimate the amount of water used each day. These are just ideas that come to mind. I'm sure you can think of more.

Since you just started your child care, you might be able to compare water usage on your bills with water usage from before you started the business. Document the increase in the amount of water used (either each month or over an entire year) and figure out what percentage of your total water usage that represents.

Regarding your side note: Tom Copeland's Record-Keeping Guide is my "Bible" when it comes to family child care tax preparation. He has been an expert in the field for going on thirty years. That's the place for any provider or tax professional to confirm the correct way to do things. Unfortunately, your friend's accountant was incorrect when he measured outdoor space.

It might actually make no difference whether the outdoor space was counted or not--such as when a provider is using 100% of her indoor and outdoor space for child care. Then she's already at a 100% space percentage, no matter what you measure.

Last updated 19 May 2011

Posted on 2010-02-23 07:10:37