7 Home Office Tax Deductions You Should Know About

It’s been roughly four months since many people started working remotely as a result of the COVID-19 pandemic, and there are many underrated benefits of working from home. During this uncertain economic time, every penny can be worth saving. For many of us, we might be wondering, “What home office expenses can I deduct for the next tax season?” And for those of us who haven’t thought too much about this, maybe now’s a good time to start.

What is a Tax Deduction?

A tax deduction lowers your taxable income, reducing your tax liability. It is calculated by subtracting the amount of the tax deduction from your income. This makes your taxable income lower.

In Canada, the Canada Revenue Agency (CRA) states you can deduct expenses you paid for the employment use of a workspace in your home, as long as the workspace is where you mainly do your work or you use the workspace only to earn your employment income.

In the United States, the International Revenue Service (IRS) states you may be able to deduct expenses for the business use of your home given the dedicated workspace is used exclusively for conducting business. The home office deduction is available for both homeowners and renters. This deduction can also be applied to all types of homes, including single-family homes, apartments, and condos.

Tax season creeps up on us every year, and it’s important not to overlook any available deductions come tax time. Here are five home office tax deductions you should know about:

1. Technology Allowances and Reimbursements

Some employers may offer some type of technology allowance or reimbursement to support their employees while working from home. Whether it’s a webcam, or a better headset for Zoom meetings, Canada’s Income Tax Act outlines that employees who are required to pay for employment expenses, including those for a home office, that are not reimbursed by their employer may be able to claim a deduction on their return for such expenses.

2. Supplies

There’s a little bit of a grey area when it comes to what types of supplies are deductible come tax time. If you’re working from home, any materials that are “used up” directly and play an essential part in the performance of your employment duties and responsibilities can be deducted. However, you’re unable to deduct any capital expenditures. This includes the fancy ergonomic desk chair, your nice widescreen monitor, and that sleek 100% dark oak standing desk. Deductible supplies can include stationery items, stamps toner, ink cartridges, street maps, and directories.

3. Rent and Utilities

If you rent a home and have a designated workspace, you may deduct a portion of the rent. This can include the cost of utilities such as gas, hydro, and electricity for the dedicated workspace. Keep in mind that for all utilities, you need to allocate the expenses on a reasonable basis. This is typically calculated by taking the area of your workspace divided by the total finished area of your home. There are also expenses that you’re unable to deduct that you must also keep in mind. These expenses include mortgage interest, property taxes, and home insurance.

4. Maintenance and Repair Costs

Along with utilities, some maintenance costs can also be deducted come tax time as well. If you’ve had to do any minor maintenance work or repairs in your dedicated at-home workspace, the costs associated with the maintenance may be eligible for deduction. The same goes for any cleaning supplies or materials that have been expensed.

5. Phone and Internet Bills

Do you have a long-distance telephone call with a client? In Canada, if your employer has not provided you with a company phone or phone plan, you can also deduct expenses for long-distance telephone calls. As long as you paid them to earn employment income, you’ll be able to deduct these expenses. However, keep in mind you cannot deduct monthly rates for a phone.

In the US, the IRS allows you to deduct your business phone, fax, and internet expenses that are directly related to your business. If you only have one phone for both personal and business use, you should only deduct costs specifically related to your business. On the other hand, if you have a phone that is exclusive for business purposes, you can deduct the full amount of that cost.

6. Vehicle Use

If you do need to use your car for business purposes while working remotely, you can deduct those expenses. Keep a detailed record of all dates, mileage, and purpose for each trip. This deduction can be calculated using either the standard mileage rate determined by the IRS or your actual expenses. Keep in mind to not try and claim any personal car trips.

7. Health Insurance Premiums

According to the IRS, if you are self-employed and pay for your own health insurance premiums, you can deduct these premiums come tax time. If you have a spouse and you’re ineligible to participate in the health plan under their employer, you can deduct your own premiums. This can include all your health, dental, and qualified long-term care insurance premiums.

If you reside in Canada, don’t forget that in order for a claim to be valid, your employer must also complete and sign a Canada Revenue Agency T2200 Form. Please visit the Canada Revenue Agency website for more information on work-space-in-the-home expenses and completing your tax return.

If you reside in the US, refer to Form 8829, Expenses for Business Use of Your Home, to deduct your expenses.

To minimize any stress for the next tax season, here are several things to keep in mind. Have supporting documentation for your expenses ready. Now’s the time to start tracking eligible home office expenses if you haven’t started doing so already.

Leave a Comment