Calculating the Claimable Expense Portion
The business space is calculated as a percentage of the house.
First, measure the room or space which is your office (width and length), and if you also utilize the car port or shed as a workshop - only for the business - measure that too, then add the result to the office amount.
You need to come up with the square feet or square meters - here is a calculator for both. Enter your linear measurements into the calculator for the squared result.
Second, the whole house needs to be measured to arrive at the square feet or meters. If you own the property you should be able to find the squared measurement from the title deed documents.
Finally, divide the office+workshop area by the house area to get the percentage that you can claim for the home office...
...use this online percentage calculator :-
will be the total measurement of your home office space, and
B is the total measurement of your
home (excluding the garden please!)
% is the percentage you can multiply against your total bill payments.
Here is a practical example:-
Tom Green Handyman
House measurement = 1200 sq ft
Business area = 300 sq ft (workshop plus office both used solely for the business)
Percentage : 300 / 1200 = 0.25 ........... Home Portion = 25%
If Tom pays $5,000 interest on his mortgage for a year the claimable portion is $5,000 multiplied by 0.25 = $1,250
There may be a threshold on the maximum percentage allowed for claiming home office tax expenses, you will need to check this out with your local tax authorities.
Home Telephone Used for Business Calls - A good way of claiming home telephone expenses is to pay the monthly bills using business funds.
Then in the bookkeeping system split the personal calls to 'drawings' and code the business calls to 'telephone'.
However, this may be a time consuming task every month if there are many calls so it could be simplified by doing the above for just three months and calculating the percentage of business calls.
This percentage would then be used on all telephone bills for the rest of the year.
To keep the tax man happy if he checks up on things you need to keep copies of these bills handy as proof of how you calculated the percentage.
Depending on where you live you may be able to claim 50% of the line rental.
Use of Private Vehicle - Well obviously this isn't part of the home, but it is another really good expense to claim.
It will be necessary to keep a log of the mileage pertaining to business use. Once again, to keep the tax man happy, a very good record needs to be maintained.
This means recording the date, the place started from and the place going to; the odometer reading at the start of the trip, the odometer reading at the end of the trip, the total distance for that trip and the reason for the trip. (Pre-printed log books are available from stationery outlets or a ruled school exercise book will suffice).
Once again, you could do this for three months, calculate the total business mileage and multiply that by the tax department mileage rates, and apply this to the rest of the year.
Sole Proprietor Tax Deductions
A sole trader who has a small number of business transactions may forgo using an accountant to prepare end of year accounts and taxation.
They may prepare their own tax returns based on their bookkeeping information utilizing the list of deductible business expenses, and they will have to calculate their home usage as discussed above.
There will be tax forms to complete to show these home expenses along with the business ones.
Below are some excellent resources about home office tax expenses. Just click on the one that relates to the country you are in - it will take you directly to the relevant tax department for that country. We have only listed the top countries that use this website. If you need to find your country just do an internet search using the phrase "self-employed home office expenses [name of country]".
USA – IRS
Canada – CRA
UK – HMRC
Ireland - Revenue, plus this other helpful resource
Australia – ATO
NZ – IRD