Claiming Home Office Expenses: Read This First

Claiming Home Office Expenses-3
Working from home has its benefits and drawbacks, but whether you love it or hate it, there is an upside to it: you can claim certain home office expenses to help reduce your taxes.   So, how does it work and what’s eligible? Keep reading to find out.   Eligibility for Home Office Expenses   In order to be eligible to claim home office expenses, you must meet two conditions:  
  1. You must be required by your employer to maintain a home office, which isn’t paid for by your employer. Your employer will need to confirm this via a T2200 form.
  1. You need to either work mainly from that home office (more than 50% of the time) or you use it exclusively for earning employment income.
  If both of these conditions are met, you can submit home office expenses in your taxes. Keep in mind, you aren’t eligible if you only work from home part of the year and you can only submit expenses for the income that requires you to work in the home (if you have multiple income streams). You also won’t be able to submit expenses that exceed your income (creating loss for your employment).   So, what expenses are eligible for tax deduction? These include:  
  • Heat
  • Electricity
  • Utilities
  • Internet access
  • Rent
  • Minor repairs
  Note, commission employees can also claim property tax, home insurance, and the lease of a laptop, cell phone, etc. that’s used for work.   Unfortunately, you can’t claim your mortgage payment/mortgage interest, furniture, and capital expenses (replacing windows, flooring, etc.), or internet connection fees.   You may also be able to submit phone and office supply expenses, depending on your employment, but these would be on a separate form.     Temporary Flat Rates vs Detailed Method    Next, let’s talk about actually calculating home office expenses. There’s two ways you can go about it: the detailed method or by using a flat rate. The temporary flat rate was introduced because of the COVID-19 pandemic, with so many people forced to work from home.   With the flat rate, you don’t need to calculate your actual home office expenses. You’re eligible for a deduction of $2 per day that you worked from home, up to a maximum of $500. You won’t need to submit any receipts or the T2200 form.   With the detailed method, you can calculate your actual home office expenses and submit them. If you think your expenses surpass $500, this method would be better for you, although it involves more work and you’ll need a signed T2200 form from your employer.   Understanding the Detailed Method   With the detailed method, you first itemize all of your eligible home office expenses. You then need to prorate them based on the portion of your home that’s used for working; for example, if one tenth of your home constitutes your home office, only a tenth of your home office expenses are eligible for deduction.   Once you have that total, you also need to determine how much of that cost was used during work-from-home periods. You will need to separate the personal and work use of your internet, for example.   Last but not least, remember that you’ll need to maintain documentation related to your home office expenses in case you are audited.     Which Method Is Right for Me?   There’s no clear cut answer, unfortunately. It depends on a number of factors, including your total costs, whether you rent or own your home, how much time you spent working from home, and whether you can get a signed T2200 form.   The temporary flat rate method is quick and easy, but has a limit on expenses. With the detailed method, you can submit higher expenses but it takes time and effort to calculate. An accountant can help you determine which method is best for you.   Key Takeaways: Home Office Expenses   Submitting your taxes can be overwhelming, even without factoring in home office expenses. But we’re here to help: we can guide you through the process and help you untangle your expenses so that you can submit your taxes confidently while getting the best refund possible.   Ready for tax help on your home office expenses? Contact us today.