Home business tax advantages

Not only can it be convenient to operate a small business from home, but there are definite financial upsides;

1. Save money by not renting office premises

2. Eliminate the time and cost of getting from home to work

3. Claim a portion of ‘personal’ expenses against your business revenue, therefore reducing your business’ income tax.

Sound good? Let’s look at how you can claim personal expenses against your business revenue. Assume your business uses a room in your home as a business office, and the room is not used for any personal use, you can treat some household expenses as business costs.

So just what household expenses can be classified as deductible business costs? Examples include:

• Mortgage interest – while your entire mortgage interest can’t be considered a business cost, it’s possible to classify a portion of it. How much will depend on the floor space your business occupies in your house – the business uses 10% of the floor space, then 10% of the interest is a deductible business cost. (Principal repayments are not deductible business costs).

 • Telephone – claim 100% of a business dedicated line (including the cost of installation), OR claim 50% of your private telephone line if this is used for business.

• Electricity/Rates/Insurance – these costs can be apportioned in direct relation to the percentage of floor space occupied by your business.

• Internet Expenses – 100% deductible if only used for business purposes, otherwise the portion used by the business is a deductible business cost.

• Depreciation of your home – depreciation at allowable IRD rates, is permitted on your home. Again, this must be in relation to the floor space your business uses. A cautionary note – if you cease using your home for business use, you will need to show the claimed depreciation as “depreciation recovered” in your income tax return, something you’ll need to talk to your tax advisor about.

• Depreciation on assets used in your home office e.g. office furniture, office computer equipment.

There are other deductions your home business may be entitled to make. Such deductions differ depending on your type of business. The IRD issues guides to assist you in determining allowable deductions.

It is critical you keep full and accurate records of the all business costs. If you’re unsure whether to claim an expense, or how much is considered business use, consult a tax advisor.