Business Income, Credits & Deductions, Expenses, Self-Employed

Claiming Home Office Expenses for Your Small Business

Are you fully self-employed and working out of your home, or are you an employee who works from home at the request or offering of your employer? In both cases, there are a number of ways you can offset some of your home expenditures by claiming certain deductions on your personal income tax return. The first thing you need to do is determine which category you fall into, and then read the rules from there.

Employment Expenses or Business Use of Home Expenses?

  • If you are self-employed, then you’ll report your Business use of Home Expenses on the T2125 and submit it with your income tax return.
  • If you are an employee and work from home, you must have a signed T2200 form from your employer which certifies the eligibility for you to be able to incur expenses related to your role – which the employer will not provide – and you are able to deduct.  Once you have that in place, then you can make some or all of the claim listed below.
  • If you’re a salaried or commission employee, you use Form T777 to claim any employment expenses to which you are entitled.
  • If you’re a transportation or trucking employee, you will use a TL2 instead.

To qualify for business-use-of-home expenses, you must:

  • Use the home workspace only to earn your business income, OR
  • Use it on a regular and ongoing basis to meet your clients, customers, or patients

Keep in mind: You cannot have another office at a second location and claim home workspace expenses.

Calculating Your Business Use of Home Expenses

The portion of the expenses that you are eligible to claim can be based on either the amount of space dedicated to your home office compared to the size of your house or apartment, or by calculating the square footage of the office space divided by the home’s total square footage. The easiest way to figure out the amount eligible to deduct is by taking the total number of rooms in your dwelling and dividing the number of rooms used for the purpose of conducting business by it.  For example, if one bedroom in a 4 bedroom apartment was being used solely for business, then 1/4 or 25% of the total property is being used for business, thus 25% of all eligible expenses are able to be claimed.

Expenses which may be eligible to be deducted, include:

  • Electricity
  • Heat
  • Water
  • Gas
  • Home or renter’s insurance
  • Cleaning supplies
  • Snow removal
  • Gardening
  • Garbage fees
  • Minor repair costs

Make sure you keep all the receipts to support the total amounts.

  • If you are a renter, you can claim your rent payments.
  • If you own your home, you can claim mortgage interest (principal payments are excluded) and property taxes.

There are additional expenses that might be more specific to your business, and using a percentage of square footage might not be the best. These expenses could include telephone, internet and cable, which might be used at a different percentage for business than the square footage would suggest. For example, if you installed a separate phone line for only business purposes, you would maximize this expense by not including it in the home office section. Since it is used 100% for the business, you would be better off claiming it in the business expenses section along with supplies, advertising, etc.

If you are registered for goods and services tax/harmonized sales tax, you can also claim input tax credits for the portion of GST/HST that was paid on the house expenses that related to your business. Review these amounts carefully. Since the GST/HST can only be claimed on expenses that GST/HST was charged, expenses such as mortgage interest and some utilities that do not charge GST/HST would not qualify for a GST/HST rebate.

Home office expenses can only be claimed against the income of that business.

You can’t create or increase a business loss by claiming home office expenses. If your home office expense claim exceeds the income, you can carry forward the unused balance and use it against future income for the business.

 

Whether you are an Employee or Self-Employed, TurboTax Online makes it easy to claim your home office expenses.

If you need more help, consider TurboTax Live Assist & Review, and get unlimited assistance and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service and have one of our tax experts do you return from start to finish.