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Tax Time: Deducting Home Business Costs

Increasingly, more people are operating businesses out of their homes. These businesses might be full-time ventures, or they might be part-time side hustles. In any case, chances are that you are paying expenses related to your home business. In such situations, it is possible to not only deduct some expenses from your home business income, but you can also deduct these home business costs against your other, “regular” income.

What Home Business Expenses Can You Deduct?

There are a number of home business expenses that you can deduct. However, you need to make sure that the deductions you take are related to your efforts to earn money. Otherwise, you could find yourself on the wrong side of the CRA. Make sure that you keep proper documentation of your expenses so that you can prove the appropriateness of your business deductions.

Some of the items that you can deduct as home business expenses include:

  • Internet-related costs: Domain registration, web development, web hosting, and other fees.
  • Dues: If you join a professional organization related to your business, you can deduct the dues.
  • Office supplies: Make sure these are just used in your home office, and not used for personal purposes.
  • Advertising: Online and offline ad costs are deductible.
  • Travel: You can deduct business-related travel, including mileage for driving, hotel costs and airfare. You can also deduct the fees related to conventions and conferences in your business field.
  • Entertainment and meals: Business meals and entertainment is deductible, but only 50% of the cost can be deducted.
  • Bank charges and interest: Your related bank fees and interest charges can be deducted.
  • Payment to others: Payment for business-related services are tax deductible, as are salaries and contracts paid to employers and hired workers.
  • Courier and postage: When you mail items, or have them sent via courier, you can deduct the costs.
  • Use of your home: In some cases (make sure you qualify according to the CRA), you can deduct costs related to the business use of your home. This includes utilities, taxes, mortgage/rent payments, and insurance costs.

Add up all of the expenses you pay in order to keep your home business running, and consider deducting them. Remember, too, that some of your costs are only partially deductible, since you might use your Internet connection for business 70% of the time. Determine the percentages involved, and be careful not to deduct personal use as business use.

Deducting Your Home Business Expenses

Your taxable income will be reduced, even though a deduction isn’t a dollar for dollar reduction in what you owe in taxes.
In order to claim home business expenses, you will need to fill out a form T2125. The form contains sections that may or may not relate to your home business. If you aren’t selling actual goods, for example, you won’t need to fill out Part 4, which deals with tangible inventory. Your business expenses will be listed on Part 5 of the T2125.
Because you will need to list your total income for the year, make sure you have been keeping track throughout the tax year. Indeed, it is best to keep good records of your income and expenses throughout the year so that you can reference your information easily. Financial software and bookkeeping software can help you with this. As long as you keep good records, and your business deductions are truly for business expenses, you shouldn’t have a problem with the CRA.

Comments

  1. Brad Ferris

    Great Post Tom!

    Definitely the time of year that people need to double check their expenses from 2011.

  2. Ryan

    Woule this hold true if you work from home for your regular job? 50% of my workweek is spent in my home office doing remote support, etc. Can I write off associated costs that my employer doesnt reimburse me for?

    • Kevin24

      I would say no, you are still working for your employer as an employee. In order to write off home expenses you have to be invoicing the company like a contractor.
      Consider yourself lucky you got to avoid rush hour and saved travel cost. If you are enduring cost such as long distance, Printer ink, paper, etc. I would approach work on an expense report.
      I have done after hours projects for work from home and traded for dinner out with the girlfriend and turned it in as an expense.
      Whatever works for you

  3. Janet Hutchins

    Even snow clearance (for courier trucks) and lawn maintenance (if you have actual clients coming to your home location) can be partially claimed.

  4. Juan

    It sure is nice that advertising costs can be claimed. Adwords sure isn’t cheap.

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