Tax deductions for home-based SME owners – Part 2

If you use a landline or mobile phone for both business and private calls, you can claim a deduction for the business portion of the calls, and tax deductions can also be claimed for cleaning costs.

In the second of our two-part feature on the tax deductions that can be claimed by the nearly one million SME owners whose business is based at their home, we look at the rebates available for operating expenses and depreciation of your business’s assets.

Operating expenses

You can claim a deduction for any expenses incurred in running your home business that are above and beyond the costs you would have accrued anyway by living in the home.

This can include the cost of using a room’s utilities, such as gas and electricity; business phone costs and internet bills. If  you use a landline or mobile phone for both business and private calls, you can claim a deduction for the business portion of the calls, and tax deductions can also be claimed for cleaning costs.

Like the occupancy expenses – for mortgage interest or rent – you can only deduct these expenses for the portion of your house that you actually use for your home business.

There are a number of ways to calculate this. One way of working it out is using the floor area of your home office – if your office is 15% of the total area of your home, you can claim 15% of water bills and internet costs.

It’s important to remember that you must be able to demonstrate how you calculated your deductions. If the ATO performs an audit, they will be looking for evidence that any claim you make is reasonable and excludes the expenses associated with normal living costs.

For those that do not have an area set aside for home use only, keep a diary for a one- to two-month period and keep a log of how your expenses have increased as a result of your work at your home-based business.

Alternatively, you can claim a deduction of 45 cents for every hour you work at home. However, this method only covers heating, cooling, lighting and furniture depreciation, and you’ll have to work out other expenses such as phone and internet separately.

Don’t forget depreciation

Depreciation is another area for which you can claim tax deductions. Depreciation is the decline in value of assets you use in your business including office equipment, computers, desk, chair, plants, even carpet, lighting and furnishings.

As with other deductions, you can only claim the proportion for which you use these assets for business, so you should also record your business and non-business use of these assets in a diary or log to demonstrate their use.

With tax time just around the corner, it’s worthwhile to look at the little things in your home business – you might just be entitled to some deductions that you can reinvest in your business.

James Solomons, Head of Accounting, Xero Australia

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