With more of a focus on work-life balance than ever, more and more people are either working from home or running their business from a home office, but most people don’t know that they could be eligible to claim this workspace on their taxes. Whether you’re self-employed, you work remotely, or your employer requires you to have a home office, you might be able to claim the costs of this home office on your taxes for significant savings. From rent to cleaning costs, your home office expenses could become write-offs and make tax season a little less painful. Find out everything you need to know below so that your workspace in the home is less of a liability, and more of a tool to help your business grow.
1. Home Office
If you’re self-employed or work out of your home, you’re likely entitled to claim a portion of your rent or mortgage on your taxes. This can mean serious tax savings for you, but there are a few caveats: your home office has to be your principal place of business or used for the sole purpose of business (which means that the kitchen table where you sometimes set up your laptop doesn’t quite count), or the space must be used on a regular basis for meeting clients or patients. If you fall into any of these categories, you can claim part of your rent or mortgage. The amount you claim depends on the size of your home office; if it takes up 10% of your home, you can claim 10% of the mortgage (math made easy!). Check here for a detailed calculation method.
In addition to your rent or mortgage, you’re also entitled to claim valid expenses that go along with having an office in your home. For example, your home office likely uses internet, electricity, water, and more, which means you can claim a portion of those on your taxes. The same proportion rule applies here: if your office takes up 10% of the space in your home, you can claim 10% of the utilities. Regular business expenses like pens, stationery, and stamps can also be claimed, but not capital expenses like desk chairs, desks, or other furniture. Don’t feel like cleaning? A cleaning service for your home office is indeed deductible, so you can do a little less dusting and a little more business.
3. Common Mistakes
There are a ton of common mistakes when filing for home-office expenses, which is why it’s a hot spot for CRA audits. If you can, consult an accountant to make sure you’re crossing your T’s and dotting your I’s, because being audited for your home-office expenses can cause the CRA to audit all of your other claims as well and that’s a hassle no one wants. Some common mistakes are claiming your full mortgage instead of just a portion (a number that big is an immediate red flag) or inflating the size of your home office. While repairs in your home office are definitely eligible, make sure you’re not claiming a family bathroom renovation, or your entire tax claim could be denied. Another mistake is using expenses to create a business loss; if your expenses are more than your net income, you can carry them over to the next year but you can’t use them to take a loss this year.
Taking the time to ensure your taxes are done right the first time around can save you months of hassle, stress, and a potentially crippling tax payment. If you’re sweating just reading this, then it’s probably time for you and I to have a talk. Contact me, and we’ll make sure you’re making the right decisions for your at-home business.