The home office deduction can be confusing and can come back to bite you at tax time.
How do I know if I can take the deduction?
- The space in your home must be for exclusive use of business. No double duty, like an office/family room, or the computer in the corner of your bedroom.
- It also must be your principal place of business. If you are renting office space at another location, you’ll have a hard time sliding this one through.
- Must be part of your trade or business. Not a room for just reading trade magazines, it must be a place that you do the work.
Here is a flowchart to help you: (I hope!)
How do I figure out the math?
For example if the total square footage of the house is 3,000 sq ft, and the square footage of your office is 300 sq ft. Then 300 divided by 3000 equals 10%
Now keep track of your home expenses, things like:
- Utilities (water, gas, electric, trash, Insurance)
At the end of the year take the totals of each of these then apply the percentage and that is the amount you can deduct.
For example if your total rent for the year is $12,000, 10% of that is $1,200.
I’m guessing that you won’t be preparing your taxes by yourself, so just give the total home expense amounts for the year and your percentages to your tax preparer.
Jackie David is the owner of Your Back Office, a bookkeeping and accounting firm that has worked with small business and creative entrepreneurs being the left brain to their right. http://www.yourbackoffice.ca
Mileage – Keep a daily log of the miles driven for business. There are plenty of apps to help you keep track. You can also keep a simple spreadsheet with:
the date, number of miles driven and, the purpose/client.
You want to deduct a portion of your automobile expenses. This includes, insurance, fuel, repairs, car washes, lease payments.
At the beginning of the year write down the number of miles on your car’s odometer, do the same at the end of the year. Take the difference between the two. This will give you total miles driven in a year. Then add up the business miles driven. You can then determine a percentage between total miles and business miles.
For example, you determine that your total miles driven for the year is 15,000 miles, you then add up your business miles driven and that comes out to 12,000. The percentage of business miles driven is 80%. Now you can deduct 80% of all of the automobile expenses.
Have more questions? Friend me on Snapchat: @yourbackoffice
I have this client who by most opinion is difficult to work with.
Trouble starts when service provider is trying to fit a round peg in a square hole. They try to do a one solution fits all approach.
Each client/customer wants to be heard and have their problem solved. If you really listen your client will tell you how they want to be treated and communicated with.
Please share your thought.
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Bring your shoe-box (or garbage bag) filled with receipts, and your laptop (or accounting system of choice). I will guide you through getting started and getting a grip on the bookkeeping process of your business.
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Your Back Office, Accounting and Consulting firm, we are the left brain to your creative right brain.
Every quarter I file sales tax returns for my clients and let them know what the payment should be.
Then my clients will comment on the amount and complain that they have to make a payment. What they forget is that they, as the business owner don’t pay the sales tax. Their customers pay the sales tax when the item is purchased. The business owner acts as the collection agent.
This gets me thinking…Why should the business owner be a collection agent for the state? There are costs involved in keeping track of the sales tax. Certainly with all of the technology there can be a better way to handle this.
Since the majority of customer use credit/debit cards, the processor could record, collect, route funds and report.
Just a thought…Let me know what you think.
Your Back Office is your partner accounting firm for developing an established creative service firm, whether in graphic design, advertising or design for the web. www.yourbackoffice.ca
I just wanted to share some information regarding the Statement of Information.
If you are a California business every year you have to file a Statement of information. You can fill this out yourself for $25.00. You go on the Secretary of State website and fill out the form online, and pay using a credit card.
There are plenty of “Services” that send very official looking mail, that will do this for you and charge about $200.00 plus. Unless you really want to pay $200 plus to do this, go ahead, but you don’t need to. If you read the letter very carefully, in small print at the very bottom it should say something like “this isn’t an official notice” or, “By signing you are giving permission to xyz company to fill this out for you”.
Please be read the mail carefully, and if you really are in doubt go to the website and you can find out if your statement of information is due.
Please feel free to leave a comment, question or share your experience.
Paypal is a great way to get paid from your clients. Especially if you aren’t set up to take credit cards. However recording the payments in QuickBooks is something I get asked about a lot.
If you invoice your clients out of QuickBooks:
1. In the Chart of Accounts set up an expense called “Paypal processing fee”.
2. When you receive the payment, enter in the amount that Paypal gives you. This will leave an unpaid balance that is the same as the Paypal Fee.
3. “Write Off” the balance to the expense account “Paypal processing fee”.
If you don’t invoice your clients out of QuickBooks:
1. In the chart of accounts set up a bank account called “Paypal”
2. Also in the chart of accounts set up an expense account called “Paypal processing fees”.
3. Record the deposit like you would in any other bank account. Record the full client payment amount. The next transactions in the paypal register is the paypal processing fee, which gets coded to the “paypal processing fee” account you just created.
4. Lastly do a transfer from the paypal bank account to your checking account.
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