Continually I am asked by small business owners what Home Office Expenses can be utilized to reduce their tax liability. To claim these deductions, the office or workshop space used needs to be the principal place from which the business is run, and it needs to be used regularly. The space needs to be used solely for business for claims to be made.
Interest on Mortgage Payments
To take this home office expense deduction ensure that you keep accurate records. Your mortgage company should provide you a statement at the end of the year stating the amount you paid in interest. Unfortunately, your principal payments as considered capital payments and thus are not tax-deductible.
Utility Payments
You can claim water, sewer, and other local utility rates that homeowner pay in your area.
Insurance
This is for home and contents insurance only. This deduction does not apply to life insurance or other insurance products not related to the operation of your business.
Repairs and Maintenance
This home office expense only applies to the specific area in which you have defined your office space. If repairs are done specifically to this area, then the repair is deductible. It does not apply to capital improvements such as replacing a roof.
Rent
If the business owner lives and works from a rented home as a sole trader, they may be able to claim rent.
However, if the director of a limited or incorporated business is running the business out of their rented home, they may be able to charge the business a portion of rent.
This then becomes a deductible business expense for the business and a home office claim for the director on their personal tax return.
Depreciation
This home office expense relates to depreciation for capital equipment. Capital equipment is items such as your printer and computer that are utilized in your business.
To take any of the above-listed home office expense deductions you must ensure that you have accurate records. If you find you are a person that does not keep up on record-keeping that IRS created a simplified option. This allows you to take the square footage of your office space and claim $5.00 per square foot up to 300 feet. This option proves to be most favorable for many small business owners.
Do you still have questions regarding the available tax deductions for home office expenses? If so, contact us as we would love to help you navigate these deductions appropriately.
