Running a small business from home involves many considerations – but the good news is you may be able to make home-based business tax deductions.
How to make tax deductions for your home-based small business
To qualify, your home must be the principal place of your business – that means more than 50% of your income-producing activities are performed there. That, or your home office must be exclusively used for your business, and used regularly for meetings with clients or customers.
Self-employed business owners, employees, and commissioned sales employees can also make deductions.
To find your business-use-of-home deduction, calculate how much of your home you use for business. If you have a home office, you can usually take the area of your work space and divide it by the total area of your home.
A portion of household expenses that relate to your business directly — like internet, phone, utilities, and cleaning materials — can also be deducted. You may also claim house insurance, property taxes, or rent.
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. This provides a calculated portion of your total home expenses.
Filing your small business’ taxes with the CRA is something all entrepreneurs worry about doing on time and correctly. But what do you do if you make an honest mistake with your taxes? What if you forgot to include something, didn’t know something was taxable, or made an incorrect entry?
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)
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.
Are you on LinkedIn? If so, we’d love to have you at the Canadian Entrepreneurship Group. The group was started by GoForth Institute for entrepreneurs either thinking of starting a small business, in the start up business phase, or wanting to grow their business – much like our small business training! The group is also great for for entrepreneurs and small business professionals looking to learn about the latest discoveries in Canadian small business research.
This month at the Canadian Entrepreneurship Group, we’ve been talking taxes. We discuss tax software for Canadian entrepreneurs and share some insights on GoForth Institute Essential Small Business Skills™ – Skill #92: Income Taxes.