Running a small business can be an incredibly rewarding experience, but it also comes with a lot of financial responsibility. Expenses can quickly pile up and make it difficult to turn a profit. One of the biggest areas where small business owners often struggle is managing business-use-of-home expenses. From calculating the deduction to what expenses you can legally claim, it can quickly become overwhelming. In this post, we’ll explore what small business and business-use-of-home expenses are and how you can navigate them with ease.
Understanding Business-Use-Of-Home Expenses
Before we dive into the details of claiming business-use-of-home expenses, let’s take a moment to define what they are. These expenses are any costs that a small business owner incurs when operating out of their primary residence. This can include everything from office supplies and furniture to monthly utility bills and rent or mortgage payments. To claim these expenses, the office or workspace must be used exclusively for business activities and cannot be used for any personal purpose.
What Expenses Can You Claim?
Once you’ve determined that your home office or workspace is used exclusively for business activities, the next step is to identify which expenses you can legally claim. This varies depending on what type of expense you’re looking to claim. For example, if you’re looking to claim rent or mortgage payments, you can only claim the portion of your home that is used as your workspace. If your workspace takes up 20% of the total square footage of your home, you can claim 20% of your rent or mortgage payments. Other expenses, such as utilities or office equipment, can be claimed in their entirety.
Calculating the Deduction
Calculating the business-use-of-home expense deduction can be a bit complicated, but it’s an essential step in remaining compliant with the CRA. To begin, you’ll need to determine what percentage of your home is used exclusively for business activities. This can be calculated by dividing the square footage of your workspace by the total square footage of your home. The total expense deduction is then calculated by multiplying the percentage of your home used for business activities by the total expense amount.
Record Keeping
As with any small business expense, it’s essential to stay organized and maintain accurate records. When it comes to business-use-of-home expenses, this is especially important. Make sure to create a dedicated folder for all expenses related to your home workspace, including receipts, invoices, and bills. Accurate record-keeping will make filing your taxes easier and help avoid any potential issues down the road.
Navigating small business and business-use-of-home expenses can be challenging, but any small business owner needs to remain compliant with the CRA and turn a profit. Remember to stay organized and maintain accurate records, identify which expenses you can legally claim, and calculate the deduction correctly. By following these steps, you’ll be well on your way to managing your expenses with ease and running a successful small business.
