In this article I will discuss how to set up your home office. I will take you through different considerations to think about in terms of choosing a location, and some of the tax implications of having a home office.
Location, Location, Location
When choosing how to set up your home office it is all about location. Are you easily distracted and taken away from your tasks? Does a messy kitchen break your concentration? Are laundry piles seeming to call your name? Working from home comes with a unique set of challenges. I have never been distracted from my work by thoughts of dirty dishes when I’ve worked in an office. Yet when I’m home I find I get interrupted by thoughts of housekeeping. Or my dogs want out, and in, and out again. Therefore I have had to think about:
- Which room offers me the space to be away from the things that distract me.
- I need a room with a door so that I can separate work and life by closing the door at the end of the work day.
- I like natural light, and find the basement of our bungalow to be too dark when working in the winter months.
- I am often in my office in the afternoon and would find a west facing room too warm in the spring and summer months.
- Do I have a, currently unused, room in my home that is large enough to accommodate my need for a desk, a printer, a filing cabinet, and a book shelf?
I lucked out as one of my children was ready to relocate their bedroom to the basement and my home office took over their bedroom. Which gave me a nice sized office with a south facing window, a large closet, and most important to my work life balance a door.
Tax Implications of a Home Office
According to the CRA website (Canadian Government site) you can deduct expenses you paid for your work space. The work space is classified as the area where you do more than 50% of your work. It also needs to be a space that you use ONLY to earn your employment income.
My accountant has told me to take the total square footage of my office and divide it by the total square footage of my house. For example if you have a 400 square foot office/1600 square foot home = 25% of your home. That percentage gives you an idea to how much of your mortgage or rent payments, power, insurance, etcetera that can be claimed on your income taxes as expenses for your home based business. It is also advisable to take photos of your home office to keep on file in case the CRA ever questions (audits) your income taxes.
My wife use to have a courier business that she ran from our double garage. We were able to claim that area as her work space along with the insulation, drywall, and heating system that were added to the garage to keep her freight from freezing. She gave that information as well as our power bills, gas bills, her cell phone bills, and all expenses related to her delivery vehicle to our accountant and those expenses were used to lower her taxable income from her business. This does not mean that 100% of those expenses were able to be claimed but rather a certain percentage set out by the CRA. ALWAYS use an accountant to do your income taxes when you have a home based business. You can do some additional research on the CRA website, although it may be said that their information can be confusing. Your accountant should be able to guide you regarding what receipts to keep, or you can use the rule of thumb that you should save every receipt, as it’s easier to throw away what is not needed than it is to find a receipt that you have lost and need.
In conclusion choosing a location for your home office should have you considering your work needs, from how much space is required to how much privacy is needed. Ask your accountant for advice regarding tracking your expenses for your home office and understand that the qualifying expenses may be different if you are working a home based business, that you own, or if you are establishing a home office in order to work from home for an employer.
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Good luck in establishing your home office, may it suit whatever purpose you need it for and may you have success within your endeavours.