Advantages and Disadvantages Associated with Operating A Small Business from HomeBrian Jang ON October 19, 2019
Each year, growing numbers of people are working at home. It is becoming so popular that it is estimated that 50% or more of Canadians could be working from home by 2020. Many are aware of the various benefits that come with a work-from-home job, but there are some negative aspects as well, which may sometimes be overlooked.
Here are a few of the advantages and disadvantages associated with operating a small business from home.
- Most parents have experienced needing to take an emergency day off when their little one is sick. Working from home means you can either continue to work while keeping an eye on your child, or take the day off if you prefer, without having to explain anything to your boss.
- If you have some down time between appointments, you may want to tackle some chores around the house, such as laundry or cooking
- You can determine the work atmosphere; do you want to work in complete silence? Do you want to crank up your music? Do as you please.
- Every day can be casual day. Work in your PJs, underpants, or… nothing
- Hate sitting in traffic? You’re not likely to encounter any walking through your home.
- You can work at any time. If there is a rush job, you don’t need to head into the office.
- Some of your expenses may be tax-deductible.
- Having kept your sick child at home, you may have interruptions when talking to a client on the phone, or in your home office.
- Multitasking doesn’t always make you more efficient. In fact, it often does the opposite.
- Working at home can be problematic if you are easily distracted. The radio, the TV, even the neighbour can all keep you from focusing on your work.
- Family and friends often have difficulty that working at home is still working. You may find them wondering why you can’t stop and chat or drop everything to help them with something.
Is Your Home Office Tax Deductible?
A major appeal of working at home is being able to claim home expenses, but not every home office is a tax write-off. For you to be able to claim home office expenses, your office must be either your primary place of work or used on a regular basis to meet clients and engage in work activities.
If, for example, your office is also a play area for the kids for part of the week, your home-office expenses will not be deductible.
How to Deduct Your Eligible Home Office Expenses
Provided your home office qualifies as tax-deductible, there are a variety of costs related to your home business that you can write off. These include:
- Utilities such as electricity and heat, or even internet
- Rent/ mortgage interest, and property tax
- Insurance (either homeowner or rental)
- Costs of maintenance
Your home office is only a portion of your home. Accordingly, you can only claim a part of these expenses. The amount that can be claimed may be calculated one of two ways:
- By number of rooms. If 1/6 of the rooms in your house is being used for your home business, then 1/6 of expenses may be claimed.
- By square footage. A 200 square foot office in a home of 1600 square feet may claim 1/8 of the expenses.
You may be best served by calculating both ways and choosing the method that gives you a higher percentage.
The amount that you can claim may not seem overly significant, but at tax time, it all adds up. Your expenses will lower your business income, resulting in less tax due at tax time.
As mentioned above, your office should be dedicated to your work. If you are using it only 25% of the time for work, but the rest of the time it is a family room, or game room, then you will need to calculate as above, but then multiply by 0.25.
Tax Tips for Your Home Office Expenses
- There is a limit to the amount you can claim, which is the amount of income left over after other expenses. This means that you cannot use your home business to create a loss. You may, however, carry them forward until they can be claimed.
- When it comes to office supplies such as paper, stamps, and other types of stationery, you can claim the full amount, rather than just a percentage. If you buy $150 worth of supplies, you may claim $150.
- You should sign up for online billing for your utilities. Having your payments visible online will make them much easier to add up than having to look up individual statements.
Working at home can be a great experience. Just remember BCJ Group is here to lend a helping hand.