Working from home – how to get a rebate for expenses
Working from home downside: no paid annual, sick days and you do your own tax. Working from home upside: be your own boss, command your own creativity and do your own taxes.
Doing your taxes both a downside and an upside? Sure, because while it may seem over-complex and quite frankly a bit of a drag, there are some perks to being self-employed - working from the comfort of your own home and it getting a big tax rebate .
Work at home expenses
The key thing for those working at home is that they’re responsible for their own expenses.
A work at home business such as a blog or freelance designer etc. means you are the sole proprietor assuming you haven’t incorporated.
If you have another job at the same time, then all of this income is combined and taxed at the marginal rate. You’ll need form T2125- Statement of Business or Professional Activities here.
Running into the negative
When you start out, you may not be as profitable as you expect to be. Sometimes you will run into the negative. For instance, if you’re running a website, then it may take time for traffic to convert into meaningful ad revenue, but increasing hits mean that you know it’s going somewhere.
You can also still claim any expenses made. For instance, if you bought a computer for the purpose of running your business, then you can claim this as a Capital Cost.
This of course is a little precarious to do every year, so let’s hope if you are running a website let’s hope you start making money in the second year.
There are other expenses that you can claim as expenses as well, if they are specific to the running of your business.
What can I deduct?
Capital costs - As well as your computer you can claim other hardware and equipment.
Software - Using the same website example for instance., you can claim images if you spent money on an image, a domain name and domain hosting.
Depreciable property - If you have a desk, printer or camera, claim the cost of these and keep all receipts. These are known as depreciable property and because they are used over time they can be deducted over a number of tax years.
Home costs – Don’t feel cheeky claiming broadband either if you work from home. You’ll just have to work out how much of it you used for personal use and how much for business and only claim the business element. The same can be said of property taxes, mortgage interest rates and any insurances. Just calculate the number of hours spent on any of the rooms for the business. Divide that by 24 and multiplying it by your business expenses. The result is your deduction. And of course, adjust it pro rata if it’s only used for part of the year.
Advertising/marketing -Any type of expense you incur for promoting your business can also be claimed. Using the website example again, this may include, affiliate programmes, or giveaways andAdSense for instance.
Stationery - anything used for business purposes such as notebooks, pens or other office type equipment can also be claimed.
Legal/accounts support - sometimes if you’re a little further ahead in your business, there may be professional fees to dole out such as for your accountant or lawyer or any procedural costs.
Travel - you may be working from home but occasionally you’ll have to venture out for a meeting, a conference or any type of field work your business might involve. In which case, expense it. According to CRA, deducting all flight and accommodation is fine and meals can be deducted at 50%.
Other utilities - there’s an argument to deducting part of your mobile phone bill as well if you use it for business. Whether you’re making calls, tweeting out or using the internet on the go.
Any business expense
The key take away however, is if you used it for the sake of your business, then keep the receipt or get the record of use and keep it for tax time.
For a comprehensive explanation of how to deduct these expenses and what other types of expenses can be deducted, with which forms, visit the Canadian Revenue Agency website.
Or contact Canopy Bookkeeping to guide you through the tax rigmarole.