Start a business, Do your taxes, Save money

Business Use of Home Expenses

Do you use part of your home for your business?

If so, you are entitled to claim a portion of the expenses you pay to keep your home standing. The space does not need to be a complete room. It could be a desk in the corner of your living room, but the catch is, it must be dedicated solely to business use. You cannot include your only bathroom because your clients sometimes use it. If you had 2 bathrooms on the other hand…

The exact categories CRA accepts at this point in time are:

  • Heat
  • Electricity
  • Insurance
  • Maintenance
  • Rent or Mortgage Interest*
  • Property taxes
  • Other (ex. water, garbage pickup, etc.)

*Be careful here! No principal portion of your mortgage payment is deductible, only the interest portion, so get a statement from your bank at the end of the year showing the total interest paid from Jan 1 to Dec 31.

Is there an easy way to claim this deduction? What numbers do I need to track?

Your deduction is calculated on T2125, the Statement of Business Activities form. You must input the total amount you paid in the year for each expense category and then the “personal” portion is deducted and you are left with the business portion of Home Office expenses. The easiest way to do this, is to gather up the following numbers and let the tax software do the rest.

At year end you will need to know:

  1. The total square feet (or meters) of your house.
  2. The total square feet of the room (or space) you use for business.
  3. The total amount you spent on each category above that you intend to claim. Let me stress: you do not need to figure out the personal portion!

You plug these numbers into your tax software (TurboTax, or whatever) and it will calculate your total Home Office Expenses and deduct it from your Gross Income along with all the regular expenses.

If you do not intend to kick out the $40 or so for tax software, and want to try doing your taxes with paper and pencil, boy are you reading the wrong blog. Even I don’t like taxes that much.

September 9, 2011 - Posted by | Home office expenses, Running Your Business | , ,

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