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?
- Figure out the total square footage of the home.
- Figure out the square footage of your office.
- Calculate the percentage. Here is a square footage calculator
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