COPYRIGHTED MATERIAL Chapter One: Calculating Your Time-Space Percentage 55 Step Three: Calculate Your Time-Space Percentage To find your Time-Space percentage, multiply your Time percentage by your Space percent­ age. In our example: 37% Time x 80% Space = 30% Time-Space percentage Here’s the Time-Space percentage formula again: # hours your home is used for business x Total # hours in a year # square feet of your home used regularly for business = Total # square feet in your home Time-Space percentage Use your 2013 Time-Space percentage only for the expenses you are claiming in 2013. Remember that you will have to recalculate your Time-Space percentage each year and apply the new percentage to your expenses. If you discover that in previous years you have not been counting all the business space in your home or all your business hours, you may want to file Form 1040X (see chapter 9) to amend your previous tax returns and collect refunds from the IRS. Exclusive-Use Rooms If you use one or more of the rooms in your home exclusively for your business, you will need to calculate your Space percentage slightly differently. For example, an exclu­ sive-use room might be a separate playroom that is used only by the children in your care. Exclusive use means 100% business use—it means that you don’t use the room for any personal purposes at all, at any time. You can walk through the area during your personal time to get to another room or to go outside, but if you use the room for personal use at all, it is no longer used exclusively for business. Let’s say that in the example on the previous page the basement playroom is an exclu­ sive-use room that is used 100% for the child care business. This room will serve as an example of how to calculate the Space percentage if you have an exclusive-use room: 1. Divide the square feet of the exclusive-use room by the total square feet of the home: 275 ÷ 2,500 = 11% 2. Divide the square feet of the rooms used regularly for business by the total square feet of the home: 1,725 ÷ 2,500 = 69% 3. Multiply the Space percentage of the shared rooms by the Time percentage: 69% x 37% = 26% 4. Add the percentages that resulted from Step 1 and Step 3: 11% + 26% = 37% Time- Space percentage Notice that this Time-Space percentage is significantly greater than the 30% that we cal­ culated previously for this example. If you use any rooms exclusively for your business, you should use this formula and claim the higher Time-Space percentage. If you use some rooms exclusively for business, try not to set aside any other rooms exclusively for personal use, if you can avoid it. If you use one room exclusively for busi­ ness and all your other rooms regularly for business, you will have a higher Time-Space COPYRIGHTED MATERIAL