WORKING FROM HOME ~ Tax tips for the self employed

By Jenn Killins

They say two things in life are certain: death and taxes. How we are going to die and how much tax we pay are both grey areas and for the most part, out of our control. But let’s leave the grim reaper in the graveyard for now. Believe it or not, I have some good news on the tax front! No, I’m not running for election… 

Taxes are not only a sure thing, they are also scary, boring and intimidating for most. Don’t let this tax season scare you or get you down. If you work from home, here’s some great news: no longer is it just the starving artist who can benefit from working from home. There is a way you can give yourself a little raise! Self employed, employees, and commissioned income earners, get ready to Google the following forms to see what tax breaks you are eligible for.

T2125 – Calculation of business use of home expenses This one will guide the self-employed Canadian to deductions at home such as heat, electricity, insurance, maintenance, mortgage interest and property taxes. The rule of thumb is if you need to spend it to make money at home, you can more than likely deduct it. Some larger repairs may have a capital cost eliminate to them. This form will give you details on this and other deductions you are entitled to if you’re self-employed.

T777 – Statement of employment expenses This form is for the employee who works from home. It is important to know that it doesn’t matter if you only work from home part of the time – you are still eligible to claim a portion of the time you do work from home. Employees are eligible to claim items such as heat, electricity, general repairs, condo fees, Internet and work phone. The only expenses you can’t claim as an employee versus self-employed are mortgage interest and property taxes. An exception is made for commission employees. As an employee, you must have your employer fill out a T2200. This form tells Revenue Canada what the employer’s expectations are for work and expenses from themselves and from yourself as the employee.

General facts about home deductions The amount of the deduction is calculated based on the amount of space you use in your home for income. Let’s say you have 10 rooms in your home and two are used for work. The pro rated amount is based on the percentage of the home used for work. In this case, 20 per cent. So, if your deduction total is $10,000 x 20 per cent, a $2,000 deduction off your income for you! It’s important to know that the deduction only applies to income. If this is the first you are hearing of this but have been working from home for quite some time, don’t fret – you are able to go back to previous years and do a T1 adjustment to make a claim for the years you missed the boat! 

Keep your receipts. If Revenue Canada comes calling, you want to make sure you can prove your expenses that have been claimed. 

And finally, don’t let all these fancy forms and terms scare you. Do a bit of homework and take it to a professional if you’re not sure or just plain can’t stand the idea of doing your own taxes. When in doubt, ask if you’re eligible to claim the deduction. Don’t assume if you don’t know! The money spent for good advice will pay off! 

There are so many financial benefits to working from home. You’re already paying most of these expenses anyway, and the fact that you can claim a portion is a great benefit. Let’s not forget the personal benefits. Nothing is better than working from home in your pj’s! 

It’s not always about working harder. There’s something to be said for working smarter! So sharpen the pencils, Google it up and give yourself that much-deserved raise!

Source: New Condo Guide