Figuring out your eligible expenses is easy if you keep your receipts and take a little time to learn these tax-saving strategies for home-based businesses. Of course, it’s always best to consult a qualified tax specialist for expert advice.
The advantages of working from home
There are advantages to working from home other than a short commute.
You can work when you want, you can blend your personal and business life as you wish, and you can deduct some of your household expenses against your taxes.
If you are starting your business from home, you may be pleasantly surprised to learn what expenses are deductible.
Canada Revenue Agency (CRA) offers clear guidelines concerning allowable expenses for entrepreneurs who choose to operate a business from home.
How much can you deduct?
To begin, calculate the amount of space you’ll be using in your home.
Let’s say you’re using a spare bedroom as your office plus a portion of your basement to store products, marketing materials and supplies. Add up that space and divide the number into the entire square footage (or metres) available within your home. For example:
- Spare bedroom/office is 200 sq. ft.
- Basement storage space measures 100 sq. ft.
- Divide 300 sq. ft into total footage of your home (say 1800 sq. ft.)
- Therefore, 16.6% of your home is used for business purposes.
You should be able to deduct 16.6% of all eligible home maintenance costs as home business expenses. Be sure to check the CRA website for any recent changes to these allowances.
That can add up if you remember to include receipts for:
- Home cleaning services, utilities, security alarm monitoring fees and telephone.
- Household supplies such as soap, toilet paper.
- Property insurance and maintenance.
Lots of receipts at home
Think about the items you use in your home office. As with any business, your expenses are tax-deductible. Your costs may include:
- Office supplies, including ink cartridges, printer paper, internet access, file folders, pens, pencils and stamps
- Professional fees paid to lawyers, accountants and advisors
- Depreciation on office equipment, chairs, desks, lamps, computers and smartphones
- Promotional expenses including marketing services, advertising, graphic design and customer giveaways (e.g. branded hats, shirts)
- Admission fees you’ve paid to attend industry conferences or networking events
- Meals and entertainment expenses
Automobile expenses are deductible
And, don’t forget about automobile-related expenses. CRA is very clear on these particular deductions.
- At least part of your car-related costs will be for business purposes. Simply keep track of your distance travelled to meet prospects, connect with customers, conference with industry colleagues, fetch office supplies, attend networking events, visit your accountant or conduct market research
- Similar to the way you calculate business-percentage-of-home usage rates, divide the amount of distance used for business into your annual distance total and apply that percentage to all automobile related costs
- Apply that percentage to vehicle related costs including gas, maintenance, repairs, insurance and leasing
This information is presented for educational purposes only and should not be considered as tax advice. Be sure to consult with a qualified tax specialist to obtain tax advice specific to your business or personal situation.