Coping with High Energy Costs

February 2001

Recent significant increases in the price of gas, oil, and electricity have affected many family child care providers. With higher prices for energy likely to remain, providers have few options to reduce energy usage; it is impractical to turn down the thermometer during business hours.

Typically, providers use their Time-Space Percentage to claim business deductions for utilities (gas, oil, water, electric, garbage, and cable TV). Most providers have a Time-Space Percentage that falls between 30% and 40%. As energy prices rise, more and more providers are realizing that a Time-Space Percentage may no longer be a reasonable measure of the cost of energy for their businesses. The cost of heating a home for ten or more hours, Monday-Friday, during the day, are probably much more than 30%-40% of the total energy bill, especially considering that the heat might be turned down in the evening; electricity use also drops after business hours.

Providers are not required to use their Time-Space Percentage in determining business utility expenses. An actual business-use percentage is an alternative. Using an actual business-use percentage means estimating the actual portion of energy costs that can be allocated to the business. Unfortunately, estimating this can be very difficult. Look at energy usage before and after the business began. Call your local utility company to see if information on your energy usage during daytime hours can be calculated and provided.

If a reasonable estimate of the business portion of total energy used can be ascertained, save your calculations on a separate paper and enter the estimate on Form 8829. Put this expense on line19, Utilities, under column "a" (Direct expenses), not under column "b" (Indirect expenses). Any amount entered under column "a" will be deducted as a 100% business expense.