While many people run home businesses so they can work in a more congenial environment, or for family-related reasons, there are also certain home business tax deductions that home business owners should be aware of.
To qualify for deducting business expenses related to using a work space for business in your home, your home must be your "principal place of business" or you must "use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients" (Business and Professional Income, CRA).
If your home business meets this definition, you'll want to check and be sure you've maximixed the following home business tax deductions on your income tax.
Have you deducted an appropriate portion of all of your home maintenance costs?
When we think about home maintenance costs, utilities such as heat and electricity spring to mind, but the cost of cleaning materials, for instance, is also a potential tax deduction. And what about house insurance? You can also deduct an appropriate portion of it as well.
How much can you claim as a home business tax deduction? The CRA advises taxpayers to "use a reasonable basis" to calculate the appropriate portion of home business expenses to claim; their formula of taking the area of the work space in your home and dividing it by the total area works well when calculating home business tax deductions.
If you own your home, have you deducted expenses related to home ownership?
For example, if you own your own home and are operating a home business, you can deduct a portion of your property taxes as a business expense. Your mortgage interest and capital cost allowance (CCA) will also be a tax deduction, if applicable.
The Canada Revenue Agency forms T2124 and Form T2032 both contain a chart called "Calculation of business-use-of-home expenses" that you may find useful to figure out your allowable claim for home business income tax deductions.
Bear in mind that you cannot deduct an amount that's more than your net income from your business.
Home business owners, of course, can also claim any or all of the other small business tax deductions mentioned in this article, if they're applicable to their particular business.
Another article I've written about taxes, "More Ways to Maximize Business Income Tax Deductions" discusses other business expenses that may apply to your situation, such as auto expenses, conventions, and employing a child or spouse in your business.
You'll find more information about calculating your business-use-of-home income tax deductions in "Calculating The Home Business Tax Deduction".
