Home Office Expenses
If you work in your home, you may be able to deduct part of your home expenses which would save you income tax. But, like everything else when it comes to income tax, there are special rules you must follow and these tax rules differ depending on whether you are self-employed or an employee.
If You are Self-Employed
If you are self-employed, home office expenses must relate to work space that is either your principal place of business or used exclusively for the purpose of earning income from your business. In order for the second criterion to apply, the space must also be used on a regular and continuous basis for meeting clients, customers or patients. Space set aside for your business must be a room or rooms used exclusively for the business.
TAX TIP Keep a well-organized file of all your receipts and payments. We can review them with you to see if they are eligible deductions. You may be able to deduct a portion of your house expenses including mortgage interest, property taxes, insurance, electricity, heat and more. Please contact us now for professional assistance to set up your home office.
Home office expenses can only be deducted from the business carried on in the home and cannot be used to create a business loss. However, eligible expenses that you cannot use in the year they are incurred can be carried forward to subsequent years and deducted from income generated by the business at that time.
TAX TIP You may be eligible to recover a portion of GST/HST on certain home expenses. Also, we advise against claiming depreciation on the portion of your home used for business purposes since there will be adverse tax implications if you ever sell your home. To determine how to recover GST/HST on your home expenses, please contact us now.
|If You are an Employee
The rules with respect to employees are somewhat different. You will be permitted to deduct costs related to a home office only if your work space is either the place where you principally perform your employment duties or is used exclusively on a regular and continuous basis for meeting people while performing your employment duties.
TAX TIP Your employer must certify on Form T2200 Declaration of Employment Conditions that you are required to use a portion of your home as an office. Please contact us now for professional assistance to determine if you, as an employee, will be eligible to claim a home office as an employment expense.
As an employee, the home office expenses that you claim are restricted. If you own your home, your deductions are limited to its maintenance such as a portion of heat, electricity and repairs. You cannot deduct mortgage interest or depreciation on your home. But if you are a commission salesperson, your deductions may include property taxes and insurance. If you pay rent, a proportionate amount of the rent will be deductible.
Similar to the rules for self-employed, you cannot create a loss from employment by claiming home office expenses. However, any eligible expenses that you cannot use in one year can be carried forward to subsequent years.
June 15, 2016 Self-Employed Tax Deadline
Be sure to file your 2015 Self-Employed Individual Income Tax Return now to avoid costly penalties.
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