Business Income

Claiming Home Office Expenses for Your Small Business

If you are self-employed and working out of your home, there are a number of ways you can offset some of your home expenditures by claiming certain deductions on your personal income tax return.

Do you have Employment Expenses or Business use of Home Expenses?

If you are an employee and work from home, you must have a signed form T777 from your employer in order to claim any home office expenses. This form, called a statement of Employment Expenses, outlines all expenses you were required to incur as part of your job. Employment Expenses may include other amounts for vehicle costs, tools, etc.

If you are self-employed and use your home as your principal place of business you may have qualifying Business Use of Home Expenses. To qualify, you must use the home workspace only to earn your business income or you must use it on a regular and ongoing basis to meet your clients, customers, or patients. 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 claim is normally based on the amount space dedicated to your home office compared to the size of your house or apartment. It is common to use the square footage of the office space divided by the home’s square footage.

The expenses that you would use under this method would be electricity, heat, water, gas, home or renter’s insurance, cleaning supplies, snow removal, gardening, garbage fees, and minor repair costs. 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, Make sure you keep all the receipts to support the total amounts. 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 cannot 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.

Using tax preparation software designed for self-employed taxpayers takes the guesswork out of taxes. With step-by-step instructions and easy-to-follow guides, TurboTax Home & Business is the perfect choice for small business owners.