Most self-employed freelancers can qualify for the same tax breaks as big businesses, but most neglect to take advantage. In fact, according to one personal accountant in Calgary, there are several additional tax breaks that are specifically for home-based business owners.
Determining Your Business Deductions
There are a large number of expenses that fall into three categories:
Indirect Expenses. Expenses that are indirectly related to your business. Rent, utilities, and general maintenance are examples because they are indirectly related to your business. The amount you can deduct depends upon the business use of your home based business.
Do you have “exclusive use” of an area that is never used for anything other than your business? Then this room or area of the home can be deductible. But it must be used exclusively for business; not for your kids to do their homework.
Direct Expenses. These are expenses directly related to the conduct of your business. This category includes office supplies, employee benefits, professional dues and memberships you pay to conduct your business, and these are generally 100% deductible. As for your phone, unless you have a second line just for your business, you can get an itemized bill and annotate all calls as business calls or personal.
Business Assets. These expenses include equipment, such as printers, fax machines, computers, and any furniture. They must be used exclusively for business use, and they are depreciable at 100 percent. Let’s say you only use some items partially, like a sofa for those morning meetings, but you use it at night for the family. You will have to specify how often you use it for business, and how often for the family, then deduct a percentage as a business asset.
Can You Write Off Your Rent?
Yes, says one personal accountant in Calgary. Self-employed freelancers can legally deduct a portion of their rent, and it doesn’t matter if you own or rent, you can still deduct a portion.
There Are Dollar Limits
Deductions for expenses that fall into the indirect expense category, like rent, utilities, repairs, etc., are limited by the dollar amount of profits your company brings in. Some deductions can be carried forward to the next year, and it can be complex to work this all out.
The best approach to qualifying for a lot of deductions is to allow an experienced accountant to take a look at all the deductibles and the current expenses, and plan how to take advantage of the current laws. A seasoned expert will know which write-offs are available for you.