As tax season rolls in, many people are looking for ways to maximise their deductions. Do you work from home on a regular basis–either because you are self-employed or because you are occasionally able to complete your work from the comfort of your own home and desk? If so, there are several key claims to keep in mind as you file your taxes. Are you maximising your working from home expenses?
If You’re Self-Employed
If you’re self-employed, it can be difficult to separate your personal expenses and your business expenses. You have a home office that’s dedicated primarily to your business. It’s filled with equipment. Can you count those purchases as tax deductions? There are several key things to keep in mind as you consider your personal tax deductions related to your business efforts.
Consider how much of your phone and internet bill are used for work. If you have a data plan, for example, you might want to calculate how much of that data is used for work time as opposed to how much of it you spend looking up things that are of personal interest.
Identify the portions of your home that are used for your business. If you run your business out of your home, chances are, there are portions of your home that you don’t utilise for personal uses. You might work out of a specific room, for example, or have a home office entirely dedicated to business. How much space does that area take up in your home? A percentage of the mortgage or energy bill may be included as tax-deductible business expenses. Running expenses can be calculated in terms of the actual expense, if you actually know it, or as 45 cents per hour based on the number of hours the space is used for business purposes.
Check out items you’ve bought for the business. Did you need a new computer? Tax software? Software directly related to your business? Keep in mind that you may have extensive expenses that are associated with the business, but that are not used only for your business. A gaming laptop that is also used to record your finances or print off the occasional piece of paperwork is not a business expense, but rather, still a gaming laptop. On the other hand, a laptop purchased just for the business and used only for that purpose is counted as a business expense. As you’re considering purchase deductions, also consider how those items have depreciated over the course of the year.
Factor in occupancy expenses. Occupancy expenses are generally available only for those to whom a work space has not been provided–that is, people who work from home every day, and who don’t have an office where they can conduct business. Occupancy expenses can help you claim the cost of some of your rent or your mortgage if you have a dedicated work space at home.
Note that as you’re preparing your taxes, it’s important to include only expenses that are directly related to running your business. You don’t want to include personal expenses as part of your business cost. For example, if you use your cell phone for business purposes on a regular basis, you may be able to claim part of that bill as a tax deduction. You can’t, however, claim the entire cell phone bill as long as it is also used for personal use. If there’s a specific area of your home dedicated to business, its portion of the house can be included as a business expense, but not the entire house.
If You Work From Home Sometimes
You work for a larger company, but you put in many of your hours from home. How does that impact your overall tax situation? You might, for example, spend most of your work hours sitting on the couch returning phone calls, or you might sit down on your laptop at the kitchen table. You don’t have a dedicated space for work, but you are using your home and your materials to help you with your work.
Work out how much of your personal expenses are actually related to work. This might include your cell phone bill, if you’re using your cell phone regularly for your company, or your electric bill, if you work from home on a regular basis and have a dedicated home office.
Consider items that have been purchased just for company use. Did you have to buy your own laptop or purchase office furniture due to a sudden need to work from home? If so, those items may count as tax deductions. If, on the other hand, those items are used more for personal use than for business use, they may not be included.
Factor in what the company provides versus what you provide. If you work from home all the time, for example, you may be able to claim occupancy expenses or running expenses. Keep in mind, however, that your claims may be limited by what your company provides. If you have the option to work from the office, for example, but choose to work from home instead, you may not qualify for occupancy claims. If your company provides you with a cell phone with internet access, but you choose to use your personal phone instead, you may not include this in your claims.
Like self-employed individuals, many people who work from home may mistakenly overprice their deductions, using large, whole amounts instead of the percentages that are actually reflected in your spending. If, for example, you mostly hang out on the couch and return a few emails after hours, you’re unlikely to incur significant financial penalties. Significant expenses, on the other hand, can be claimed.
If you’re struggling to prepare your taxes this year or need more help maximising your deductions, consider how we can help. We’ll work with you to put together the maximum deduction amount you’re owed while preventing you from missing out on any important tax advantages.
Contact us today to learn how we can help.