Home office deductions – What can I claim?

How to qualify for a home office deduction

You may be entitled to claim deductions for home expenses including a computer, phone or other electronic devices you are required to use for work purposes, as well as a deduction for running costs.

As an employee, generally you can’t claim a deduction for occupancy expenses, including rent, mortgage interest, council rates and house insurance premiums.

Claiming a computer, phone or other electronic device as a work-related expense

If you are an employee and required to use your computer, phone or other electronic device for work purposes, you may be able to claim a deduction for your costs.

Taking a home office deduction has triggered many an audit for American taxpayers, so it’s important to understand the law and know if your home office qualifies for the home office deduction.

Best of all, you can prepare yourself before you even start your home business so you can get every penny possible back.

What is the home office deduction?

If you carry on all or part of your employment activities from home, then some portion of the home running expenses can be claimed as a tax deduction. Ideally, you should have a room set aside as a home office.

The more people work at home, the most often they try to claim a home office deduction on their income taxes. The home office deduction allows taxpayers who work at home and maintain a home office to get a significant reduction in income taxes, as long as certain standards are met.

Home-based business

Home-based work lets you be your own boss, and make a living on your own terms. But the other side of making money is not spending more than you have to, so knowing which tax savings you are entitled to can be a great help in making a home-based business a success.

The deductible expenses that crop up from working at home can be viewed as being:

  • ‘occupancy’ expenses
  • ‘running’ expenses
  • vehicle expenses.

If you work from home

Home office furniture like desks, chairs, footrests, fans, heaters or light fittings can also be eligible for a deduction, although these may need to be depreciated over time depending on the cost.

What are the criteria for the deduction?

 

Your home office is used regularly for your home business. Let’s say you primarily work on a laptop in your car but your home office is your home base. But if you rarely actually use that home office, you likely won’t be able to claim it on your taxes as a home office deduction.

If you run a daycare from your home, there is an exception given to the exclusive use criteria because while the home is used regularly for business, it’s not used exclusively for business.

The second criteria concerns why the home office is used as a home office. That is, if you work from home at your own business, you will meet this criterion. Most home businesses will meet this particular point, but if you work for an employer and you sometimes work at home, it can be hard to prove this particular requirement, especially if the employer also provides an office or space for you to work away from your home.

 

How to make home office deductible

If you work at home full time, it makes sense to take some time figuring out how to create an environment that lends itself to taking that home office deduction. If your desk is in the family room, but you use it exclusively for the business, consider partitioning off the part of the room that is just for your business. That way, you create a home office that is used exclusively and regularly for your home office.

In addition, keep all receipts for computer purchases, furniture purchases and any other purchases that are used for your business. All of these are deductible in addition to the home office.

Records you must keep

You must keep records of home expenses, such as:

  • receipts or other written evidence of your expenses, including receipts for depreciating assets you have purchased
  • diary entries you make to record your small expenses ($10 or less) totalling no more than $200, or expenses you cannot get any kind of evidence for, regardless of the amount
  • itemised phone accounts from which you can identify work-related calls, or other records, such as diary entries (if you do not get an itemised account from your phone company)
  • a diary you have created to work out how much you used your equipment, home office and phone for business purposes over a representative four-week period.

Resources

Home Office Expenses

Home Office Expense Calculator

Running Your Business From Home

Expenses and Deductions

Deductions You Can Claim

Make use of online resources

There are plenty of great online resources you can check out, such as:

The ATO website

The Department of Human Services

The CPA Australia website

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