Taxes must be filed annually, and there’s no way to avoid them. Calculating the business expenses is a part of tax planning, and it’s important for home daycares because it will reduce taxes. To determine the business expense, you must first figure out the time-space percentage. The time-space percentage determines what percentage of your home expenses are used for your business. Follow the steps below to calculate the time-space percentage for your home daycare business.
Track Hours Worked
It’s important to track the hours worked. Hours worked includes the time the children are in your care during the hours of operation. In addition, it consists of the time you spend cleaning and planning before and after the children leave your home. The time percentage can be calculated by adding up the number of hours the home is being used for business and dividing this number by the total number of hours in the year. For example, there is 8760 hours in a year. Supposed you worked 2860 hours in a year. To get the time percentage you’re going to take 2860 and divide it by 8760, which equals .33
Measure Rooms Used for the Daycare
Next, you’ll need to know the total square footage of the entire home to calculate the space percentage. After you determine the total square footage of the house, take some time to measure the rooms you use for your childcare business within the home. Once you have this information, you can calculate the space percentage by dividing the square footage used for business by the home’s total square footage. For example, the house is 2500 sq ft, and suppose you use 1250 sq. ft of the home for business. 1250/2500 = 0.5 for the space-percentage.
Calculate The Time-Space Formula
Calculate the time-space formula by multiplying the time and space percentage (see previous examples). For instance, .33 (time percentage) x .50 (space percentage) = 0.165. Now convert 0.165 into a percentage by multiplying it by 100. The time-space percentage is 16.5%. This is the percentage you will use to calculate business expenses.
Calculate Business Expenses
To calculate the business expense, multiply the total amount of an expense by the time-space percentage. This formula can be used to calculate the business expense for the mortgage or rent and bills such as electricity, gas, water, trash, telephone, internet, etc. For example, the electric bill totals $900 for the year. To determine how much can be written off on your tax return, take $900 and multiply it by 16.5% (time-space percentage), which will equal $148.50 for the business expense for electricity. This formula should be used to calculate all the household bills.
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