Calculating home-based business deductions
- Published
- in Small Business Tips and Advice
Did you know that entrepreneurs operating their business from home may be eligible for home-based business tax deductions? To qualify, your home must be either:
- The principal place of your business (that means over 50% of your income-producing activities are performed there)
or
- Your home office must be exclusively for your business and used regularly for meetings with clients, customers or patients.
How to calculate home-based business deductions
The business-use-of-home deduction is found by calculating how much of your home you use for business — usually, if you have a home office it’s possible to take the area of your work space and divide it by the total area of your home.
A portion of household expenses that directly relate to your business — including utilities, telephone, internet and cleaning materials — can also be deducted. House insurance, property taxes, or rent may also be claimed.
If you operate a part-time business out of your home, expenses must be adjusted accordingly by calculating the hours the work space is used per day, divided by 24 hours to get a calculated portion of your total home expenses.
Employees and commissioned sales employees of your home-based business are also able to make tax deductions.
For more information, including what in-the-home expenses you can and cannot deduct, check out CRA’s guidelines for work space in the home expenses.
Even if your home office isn’t your principal place of business, you can still deduct expenses if it’s the place you meet or deal with clients, customers or patients in the normal course of business. This use cannot be occasional or incidental; it must be a regular part of your business. Note that special rules apply to the use of a separate structure or storage space.
Usually people who have home based businesses don’t calculate the home based business deductions. It is important to get an idea regarding how much of your home you are using for your business. this information gives the benefits of making such calculations and why they should be made.