| If you are working from home, you may or may | | | | location for the business of selling your products. |
| not have an area of your home that you refer to | | | | The exclusive use test does not apply to storage |
| as your office. It may be that you make your | | | | areas, but the space must be a specific, |
| phone calls from the bedroom and complete your | | | | identifiable area. Suppose, for example, that you |
| paperwork at the kitchen table and see | | | | use a cupboard in your hall to store your |
| customers or clients in the family room. | | | | inventory. Even if you use the space to store |
| On the other hand you may have a separate | | | | linens as well, it will be deductible as part of your |
| room in your home which is furnished with a | | | | home office. |
| computer, printer, desk, comfortable office chair, | | | | Deductible office expenses include a portion of the |
| phone, filing cabinets etc. from where you conduct | | | | following expenses: |
| all aspects of your business. | | | | Rent,real estate taxes,mortgage |
| While from the point of view of maintaining an | | | | interest,utilities,home insurance. |
| efficient office the latter option is probably | | | | If clients or customers regularly visit your home, |
| preferable, many of us don't have the luxury of | | | | the costs of lawn care, landscaping, and driveway |
| an extra room that can be set aside for a home | | | | repairs may also be included. |
| office and we end up working under | | | | Repairs to other parts of the house and family |
| circumstances much closer to those mentioned in | | | | living expenses (such as food) are not deductible. |
| paragraph one. | | | | However, a pro rate share of repairs that benefit |
| Regardless of how your "office" is set up at | | | | the entire home, such as roof repairs or painting |
| home, you may be able to deduct a portion of | | | | the outside of the house, may be claimed. The |
| the operating expenses of your home and treat | | | | same is true for the business portion of the cost |
| them as office expenses. | | | | of installing and maintaining a home security |
| To qualify for these deductions you must use | | | | system. |
| your home or portions thereof regularly and | | | | You may also include a deduction for depreciation |
| exclusively as your principal place of business for | | | | on your home, but as this could well lead to a |
| your home based business. Regular and exclusive | | | | recapture tax upon the later sale of your home, |
| use means that you can't just point to a desk in | | | | you should obtain advice from your tax advisor |
| the corner and call it your office. It must be | | | | before considering this. |
| broken in by regular use. This does not mean you | | | | The percentage of your home used for business |
| have to use it every day, but it must happen | | | | is computed by dividing the square footage used |
| frequently enough to show that you are actively | | | | for business by the total square footage of your |
| engaged in your home based business. | | | | home. Your home office deduction is figured by |
| If you think that the regular use of your office | | | | multiplying the total of your allowable household |
| might be questioned, keep a log book (see | | | | expenses by the percentage of the home being |
| Record Keeping article issued earlier in this series ) | | | | used for the home business. e.g. Total Square |
| recording your home based business activities and | | | | Footage of house is 1500 sq ft. Total Area used |
| business visitors for each day the office is used. | | | | for business is 150 sq ft. making the percentage |
| You are not required to commandeer an entire | | | | of the home being used for your home based |
| room or a separate structure to meet the | | | | business 10%. Thus 10% of total allowable |
| exclusive test. A portion of a room is acceptable. | | | | household expenses can be used for home |
| Whatever space you do set aside, however, | | | | business deduction. |
| must be used exclusively for your home-based | | | | In most countries, the home business deduction |
| business. You can set aside more than one area | | | | cannot be used if your home based business |
| of your home for business. For example, one | | | | already has a loss for the year. Neither can it be |
| room may be used as an office and another for | | | | used to create a loss for the year. Usually |
| meeting or entertaining clients. Your principal place | | | | however, any part of the deduction not used can |
| of business is where: (1) you conduct the most | | | | be carried forward to future years. Verify with |
| important activities for that home based business | | | | your Tax Advisor as these rules do differ widely |
| and (2) you spend the most time. | | | | between countries and also frequently change |
| If you meet with clients or deliver goods or | | | | when tax authorities update legislation. If claiming |
| services to customers, your principal place of | | | | the home business deduction you will need to |
| business could be where those meetings or | | | | record the following information: |
| deliveries take place. However, if your home | | | | Total Sq Footage of Home, |
| based business has no fixed location, you may | | | | Sq Footage of Home Office Area(s), |
| deduct expenses for a home office if you use | | | | Utility Costs, |
| your home to conduct substantial management | | | | Insurance, |
| activities and complete necessary paperwork. | | | | Repairs & Maintenance, |
| You can have more than one principal place of | | | | Mortgage Interest, |
| business if you have separate business activities. | | | | Property Taxes, |
| For instance, you may be employed and work in | | | | Rent, |
| your employer's place of business all day, then | | | | Although this sounds complex it is one of the |
| return home to run your own home based | | | | most advantageous tax deductions available to |
| business on evenings and weekends. Or you may | | | | home business owners and should not be |
| own a business that operates in rented office | | | | overlooked. Should your home based business |
| space and also conduct a second home based | | | | operate at a loss, you will probably be able to |
| business from your home. Your home office | | | | offset the loss against any other income that you |
| expenses will be deductible, because your home is | | | | have earned, thus reducing the amount of |
| the principal place of operating your home based | | | | Income Taxes that you will be required to pay. |
| business. It does not matter if your businesses | | | | So now you should be able to see the very real |
| are closely related or share the same clients, as | | | | advantage of operating a home based business. |
| long as different tasks are involved. Do not bring | | | | Note: Taxation legislation differs between |
| work home from your employer or another | | | | countries and each country may change their |
| business that does not qualify for the home office | | | | rules at any time. The information provided in |
| deduction, or you could lose the deduction for | | | | these newsletters is accurate at time of |
| your home based business activities. You will fail | | | | publication. You should however seek specific |
| the exclusive use test. | | | | information from your Tax Advisor or Taxation |
| If your business is selling products, you may | | | | Department as it relates to your own situation |
| deduct expenses allocated to areas of your home | | | | each year that you are required to provide |
| regularly used for storing your inventory and | | | | Income and Expense Statements. |
| product samples. Your home must be the only | | | | |