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Accounting software is essential to keep home-based business owners on top of their earnings and expenses - and to make it easy to claim home office deductions at tax time. Learn about tax deductions that may benefit you... and how you can take advantage of them with Intuit software like QuickBooks and QuickTax Business.
Understand Who You Are
If your residence is your principal place of business, you qualify as a home business. Your office is defined as that place in your home used on a regular basis to earn income. When it comes to your taxes, you may be entitled to claim a portion of your occupancy expenses such as rent, mortgage interest, property taxes, and insurance. The claimable portion depends on the amount of space and time your office is used for business. The EasyStep interview in QuickTax Business provides step-by-step support and does all the calculations, making it quick and easy to maximize allowable deductions.
Know Your Tax Deductions
...Otherwise known as business expenses. This covers a lot of the costs you incur to earn income. Office supplies like paper and pens, equipment rental, consultant fees, phone and Internet access, as well as your financial management software all qualify as deductions, but only a portion of depreciable items - like printers and furniture - can be deducted. If your business requires use of your car, you may be entitled to claim some of your gas and repairs, rental fees, parking and even washes.
Shades of Grey
Sort out where life and business costs overlap. Living expenses such as personal apparel, grocery bills, and leisure expenditures are not deductions. But you can deduct that sushi lunch you have with a client - up to 50 per cent of the amount incurred.
When you're away on business, the cost of your meals, drinks, and entertainment are also deductible up to 50 per cent. As noted above, home owners can deduct mortgage interest, insurance, property taxes and capital cost allowance. Renters: your rent is deductible. Utilities and repairs are deductible, as are cleaning materials.
Portion Control
Now you know that only the business portion of some of these overlapping expenses is tax deductible. The amount you can deduct from your heating costs, for example, is determined by how much time and space you allocate to your business. The same goes for the amount of automobile expenses you can deduct. Check out the Canada Revenue Agency’s “Calculation of business-use-of-home expenses” chart on Form T2125 for more.
Look Ahead
Carefully track your expenses each and every day. All your business purchases must be documented with receipts. Just as employees have their taxes withheld from their pay cheques, setting aside a portion of your earnings will cover your tax liability in April and avoid any nasty surprises.
Stay Informed
Here are some resources to help...
For more information on income tax and home businesses:
Support and networking for self-employed women based in the home:
HOME BUSINESS? Manage Your Money with QuickBooks Pro. Integrates with QuickTax!1
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