Calculating Time Space When Taking Summers Off

[Kemp]

Quick question on How to figure my time space % when only providing care during the school year and taking summers off.

I provide care in my home from mid Aug to May 31st. Daycare is closed from June 1st to around Aug 20th each year. I generally do not record working any hours in June of July. I usually start recording hours the week prior to going back to work in August as I am cleaning, meal planning, activity planning, organizing etc that week before.

How should I be calculating my time %? Do I divide my hours worked by total hours available for 12 months or total hours available for9 1/2 months? It makes a significant difference in my time space %.

[LittleExplorers]

I do the same and was told you count year round as businesses don't start and stop annually. You can't start and stop depreciation for the closed months etc. and I was unable to find tax law that said I could not include those summer months. I did find tax law staying you have to count days off in your total time so this is like an extended time off. I do count any time advertising, painting my daycare space, switching toys up, online trainings etc that I take while closed.

[TomCopeland]

Originally Posted by Kemp

Quick question on How to figure my time space % when only providing care during the school year and taking summers off.

I provide care in my home from mid Aug to May 31st. Daycare is closed from June 1st to around Aug 20th each year. I generally do not record working any hours in June of July. I usually start recording hours the week prior to going back to work in August as I am cleaning, meal planning, activity planning, organizing etc that week before.

How should I be calculating my time %? Do I divide my hours worked by total hours available for 12 months or total hours available for9 1/2 months? It makes a significant difference in my time space %.

Here's an article I've written about this: http://tomcopelandblog.com/will-take-time-off-summer

[Kemp]

Thank you both for the quick reply. I have not been using my utilities for the entire 12 months. I leave out the utility bills for June and July. Should these be included then?

[TomCopeland]

Originally Posted by Kemp

Thank you both for the quick reply. I have not been using my utilities for the entire 12 months. I leave out the utility bills for June and July. Should these be included then?

If you say you are open for twelve months a year, then count the utilities for 12 months. If you say you are open for 10 months a year, don't count house expenses for 12 months. If you are open for twelve months your time-space% will be lower and will be applied to 12 months of expenses. If you are open for 10 months, your time-space% will be higher but you can only deduct 10 months of expenses. In general, I think it's better to say you are open for 10 months.

[LittleExplorers]

Originally Posted by TomCopeland

If you say you are open for twelve months a year, then count the utilities for 12 months. If you say you are open for 10 months a year, don't count house expenses for 12 months. If you are open for twelve months your time-space% will be lower and will be applied to 12 months of expenses. If you are open for 10 months, your time-space% will be higher but you can only deduct 10 months of expenses. In general, I think it's better to say you are open for 10 months.

Is there tax law that speaks to allowing us to say we are only open 10 not 12? My tax person goes to lots of your trainings and is on your list of tax companies but is questioning the 10 month for time. He is wondering what tax laws apply to this.

[Kemp]

Sorry, I am not understanding this correctly. Right now our taxpreparer takes my hours for the 9.5 months I am providing care in my home and divides that number by the number of hours in a year (8760). My time space comes out to be around 26%. But when I divide that number by 7056 hrs which is the actual number of hours per yearly home is open for care ( 42 wks x 168 (hrs/wk) it comes out to 33%. 100% of my home is used for daycare. I am not understanding how using the hours for 12 months would give me a higher percentage?

[TomCopeland]

Originally Posted by LittleExplorers

Is there tax law that speaks to allowing us to say we are only open 10 not 12? My tax person goes to lots of your trainings and is on your list of tax companies but is questioning the 10 month for time. He is wondering what tax laws apply to this.

There is no rule that says you can't treat your business as open for ten months a year. It's logical that if you are only open for ten months a year you can only claim expenses for those ten months. If you are going to say you are open for twelve months a year, then you are entitled to claim 12 months of expenses.

[TomCopeland]

Originally Posted by Kemp

Sorry, I am not understanding this correctly. Right now our taxpreparer takes my hours for the 9.5 months I am providing care in my home and divides that number by the number of hours in a year (8760). My time space comes out to be around 26%. But when I divide that number by 7056 hrs which is the actual number of hours per yearly home is open for care ( 42 wks x 168 (hrs/wk) it comes out to 33%. 100% of my home is used for daycare. I am not understanding how using the hours for 12 months would give me a higher percentage?

If you are going to use 8760 as the total number of hours in the year, then you are entitled to claim 12 months worth of house expenses. If you are going to use 7056 hours in the year, then you only get 9.5 months of house expenses. Using 8760 hours gives you a lower time-space%, but more house expenses. Using 7065 hours gives you a higher time-space% but lower house expenses. In my opinion you want to use 7065 hours because your higher time-space% then gets applied to other shared expenses (supplies, repairs, toys, furniture, etc.).

[Kemp]

Thank you so much Tom! I understand now. I misread the article you shared and thought I was obligated to count the full 12 months of hours.
Will share this with my preparer. This will definitely help me!

[LittleExplorers]

Originally Posted by TomCopeland

There is no rule that says you can't treat your business as open for ten months a year. It's logical that if you are only open for ten months a year you can only claim expenses for those ten months. If you are going to say you are open for twelve months a year, then you are entitled to claim 12 months of expenses.

Thanks, I will share this with him. Does counting only 12 months effect depreciation in any way?

[TomCopeland]

Originally Posted by LittleExplorers

Thanks, I will share this with him. Does counting only 12 months effect depreciation in any way?

If you count 12 months you can deduct 12 months of depreciation. If you only count 10 months, you get 10 months of depreciation.