What's the most important thing you can do between now and the end of the year to reduce your taxes?
Keep at least two months of records showing how many hours you worked in your home when daycare children are not present.
These hours help determine what your Time-Space Percentage will be. Your Time-Space Percentage is used to determine how much of your house expenses (property tax, mortgage interest, rent, utilities, house repairs, house insurance, and house depreciation) you can deduct.
In previous articles I have discussed the importance of tracking the hours you work after children are gone and how to keep records of these hours.
One tool that can make this job easier is Minute Menu Kids Pro.
Minute Menu Kids Pro is an online family child care management software program that can save you time and money on your taxes. It's the most popular family child care record keeping software available.
The program is most commonly used by child care providers to complete their Food Program
paperwork and and it can be used to submit claims to their sponsor electronically. It contains built-in CACFP approved meals, ingredients, pre-planned
menus, as well as easy-to-track meal counts and attendance records.
Minute Menu Kids Pro also contains a comprehensive record keeping section that tracks parent payments, prints receipts, calculates your Time-Space Percentage,
and tracks all business expenses. The program is updated each year with
current mileage and meal allowance rates, and it organizes business
expenses into categories that match IRS tax forms.
See my previous article about Minute Menu Kids Pro.
To enter your hours in Minute Menu Kids Pro, go to the "Accounting" section and then click on "Time-Space Percentage." You will then see the following two tabs:
Time - Hours Children Present
There are two ways you can track these hours. Enter the hours children are present each day under "Hours from Attendance Records" or use the hours your program is open under "Hours from Operations." It's more work to enter daily attendance records, but these will be more accurate that your hours of operation (that can vary). To see how they differ, select one method and then the other. You can wait until the end of the year to make your final selection.
Time - Other Activities
In this section you can record hours you spend on business activities when children are not present. You can record this information each day, or at the end of each weekly or once a month.
Press "Add Entry" to record your time. You will enter the number of hours you worked and then choose from a pull-down menu a description of the activity: Business Phone Calls, Cleaning, E-mail/Internet Activity, Family Child Care Association Activities, Food Program Paperwork, Meal Preparation, Other, Parent Interviews, Planning/Preparing Activities, Record Keeping.
If you conduct an activity that is not on this list, choose "Other." You can make notes to clarify any of your activities.
I suspect that very few providers track these hours on a daily basis. It's too much work!
My recommendation is that you carefully track these hours for two different months each year. Be sure to indicate the time of day you do these activities in the notes so the IRS can see they are not being done when children are present.
Here's an example of how one entry might look: 2 hours, Cleaning, Notes: 6:00am - 7:00am and 6:30pm - 7:30pm.
After completing two months, divide the total number of hours by two and use the average for the other ten months. For example, if you worked 40 hours in February and 44 hours in August, the average would be 42 hours (40 + 44 = 84 divided by 2 = 42).
Pick one day in each of the other ten months and enter 42 hours under "Other" as the activity. Yes, you can't work 42 hours in one day, but the software will allow you to enter more than 24 hours in a day for purposes of calculating your Time-Space Percentage. Minute Menu Kids Pro will use the numbers you have entered to calculate your Time-Space percentage for the year.
If you do a careful job of tracking hours for two months each year, your records should be accepted by the IRS.
If your two months of recorded activities are not typical of the rest of the year, track more than two months of activities. Continue to carefully track at least two months of hours each year going forward.
Tom Copeland - www.tomcopelandblog.com
Image credit: www.minutemenu.com
For a detailed discussion of how to calculate your Time-Space Percentage, see my book Family Child Care Record Keeping Guide.