There are some misconceptions surrounding home office deductions, and accountants constantly have to clear these up. All expenses that are deductible are only deductible to the allowed allocations, as per the office space as a percentage of the whole house. Look at the room that is dedicated to the office and add up how many square feet it is, and figure out what percentage that is as part of the whole house. This assumes that you have the office space set aside for exclusive use as a home office. It gets more complicated, otherwise.
The Household Expenses
The actual expenses of running the house are deductible. This includes all of your utilities, gas, power, water. Track these separately and then allocate the correct allocation. You cannot write off your mortgage, despite what you may hear. You can, however, include the mortgage interest, accordingly, as well as property taxes. House insurance is also a home office expense, again according to the correct allocation, as above. If you rent your home, then the appropriate percentage of your rent is deductible. You cannot write off your cable TV. You may be able to write off part of your internet access, but be prepared to justify this as a legitimate business expense.
Other Expenses
Most people don’t realise that they can allocate a percentage of their cleaning supplies as well. So, track the garbage bags, furniture polish, and dusting cloths, and allocate a percentage of these as well. Also, if you get your carpets cleaned and the office is carpeted, note how much it is to get that room cleaned. If you have duct cleaning done, allocate the appropriate percentage of that cost.
Do you have clients meet you at your house? If so, then you can also allocate a percentage of the yard upkeep. But keep it low and reasonable or you will get questioned on it. Do you have a vehicle that is used exclusively for the business? If it is stored in the garage, you may be able to allocate an extra percentage for parking, or a flat monthly rate, reasonable for your neighbourhood. It is best to talk with your accountant or tax advisor about that, just to make sure, since this is a grey area.
As you can see, there are several things that most people don’t think of. Be aware of anything that can be a cost to your business, as if you were renting a space somewhere and what the costs there would be. Chances are, if it is allowable outside the home, it is allowable for the home office, too. And track it accurately, and allocate it fairly. Then you will have no issues with the tax man if he comes calling.
Johanus Haidner - Johanus Haidner (BA, BEd, MBA) is a martial artist, writer, craftsman, artist and life coach in Edmonton, Alberta.
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