Top 5 Tax Deductions When Working From Home

Making the choice to work from home can be one of the best and worst decisions you ever make. Choosing to start your own business gives you the freedom to make your own hours, choose the work you want to do and hopefully spend more time with your family. Unfortunately, the extended time in the home can also increase your living expenses. Fortunately, there are a lot of things you can claim on your tax when you decide to work from home.

Running costs

If you’re working from home or running a business from home, you could be entitled to claim a percentage of your electricity costs on tax. This includes the cost of lighting, heating and cooling when you’re working. You can calculate your actual running expenses or use a fixed rate of 52 cents per hour for each hour that you work from home.

You can claim based on a pattern of use of your home work area. In this case, you are required to keep a diary for a representative four-week period that shows how you use your home for work. You can then use this pattern for the entire year but remember to exclude holidays and sick day periods.

Alternatively, if you use an area of your home for your business you can claim based on floor space. For example, if your home-work space is 10% of the total area of your home, you can claim 10% of your electricity expenses.

Occupancy expenses

Employees cannot claim occupancy expenses but if you’re a business owner you may be eligible to claim a percentage of your rent or mortgage. To be eligible to claim occupancy expenses you must pass the interest deductibility test. This means that your home must have the character of a place of business. Some indicators of this are:

  • A sign at the front of your house identifying your business
  • Used regularly for visits by clients
  • Not suitable or adaptable for domestic purposes
  • Used excessively for business

Phone and internet expenses

If you have an existing landline at home, you could be eligible to claim costs associated with calls for your business. However, you are not eligible to claim the set-up of a new landline service. You can calculate your phone expenses by totaling all the business calls made on your landline or dividing the total number of business calls by the total number of calls. Your internet expenses can be claimed either on time or data used for business purposes.

If you are not claiming more than $50, you can use the following numbers to calculate your claim: $0.25 for work calls made from landline, $0.75 for work calls made from mobile, $0.10 for text messages sent from mobile.

Depreciation of equipment

I’m sure you’re aware that you can claim the depreciation of your work assets such as your computer and phone, but did you know you can also claim the depreciation of your furnishings? Office furniture, curtains, carpet, vehicles and electrical tools and equipment are some examples of items that you can claim depreciation for. If you are using items solely for the business, then you are eligible to claim the full deduction for the decline in value. For items that are partially used for the business you can visit the ATO website here and see how much you can claim.

Solar

Small businesses are eligible to claim their solar system as part of the $30,000 Instant Asset Write-Off Scheme. In the case of home businesses, you may be eligible to claim part of the cost of your solar system on your tax.

Records you must keep

Don’t forget that if you’re claiming any of the above things, it’s important to keep your records. The ATO recommends holding onto:

  • Receipts or other written evidence
  • Diary entries to record small expenses
  • Itemised phone accounts

Starting a business from home can incur some additional expenses but it shouldn’t break the bank. It’s important to remember why you chose to take the leap and make sure you reap all the benefits. For more information on what or how much you can claim when working from home click here. For running a business from home click here.

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