If you have a room in your home that you used all year for child care business purposes, and never for personal purposes, you will have a significantly higher business percentage on Line 7 of Form 8829, Expenses for Business Use of Your Home, as a result.
Some software helps you do this special calculation, but don't count on it. And don't count on your tax preparer's software doing the calculation either. My Lacerte software from Intuit sure doesn't. I have to do this calculation by hand and then manipulate my software to get the correct result. If you have an exclusive-use room, make sure your tax preparer is aware of this calculation. You might want to print out these instructions and take them to your appointment to be sure.
Try to document an exclusive-use room, because auditors must often be convinced. Take photos. If you have small children of your own, maintain a toy area somewhere else in the house and take pictures of that, too. Your children can be in your day care room during regular hours, but not after hours or on weekends. If they do go into the room after hours, it is not an exclusive business-use room. Likewise, you cannot bring in a rollaway bed over the holidays for grandma.
FORM 8829 BUSINESS PERCENTAGE CALCULATION EXAMPLE:
This is the same as my original example but with the addition of an exclusive business-use room.
Karen has a 2000 square foot home. She uses the entire home regularly for her day care business, except for the 200 square foot master bedroom. This year she was open from 6am to 6pm, Monday through Friday. She or her husband worked an additional 255 hours during the year before opening, after closing, and on weekends. She took a week vacation and eight holidays.
Added for this example: Karen also has a 400 sq. ft. playroom that was never used for personal purposes during the year.
Business Percentage Calculation for Exclusive-Use Playroom
400 sq. ft. playroom [divided by] 2,000 sq ft. total home area = .2000 = 20.00% (business percentage for playroom)
There is no time component for the playroom, because it is used 100% of the time for business purposes.
Time/Space Calculation for the Rest of the House
Space Percentage Calculation:
2,000 sq. ft. total home area [minus] 200 sq. ft. master bedroom [minus] 400 sq. ft. playroom = 1,400 sq ft. used regularly (but not exclusively) for child care business purposes
1,400 sq. ft. regular use area [divided by] 2,000 sq. ft. total home area = .7000 = 70.00% (space percentage)
Time Percentage (same as in my original example) = 36.88% (time percentage)
Time/Space Percentage calculation:
.3688 (time percentage) [times] .7000 (space percentage) = .2582 = 25.82% (time/space percentage for the rest of the house)
Overall Business Percentage for Form 8829
20.00% (business percentage for exclusive-use playroom) [plus] 25.82% (time/space percentage for the rest of the house) = 45.82% (overall business use percentage)
This business percentage is 12.63% higher than the business percentage from the first example without an exclusive-use room.