Like numerous employees worldwide, did you also choose to work from home amidst the pandemic? And the reason should have been the amount of flexibility it offers, right? But did you know that you can claim for work from home deductions against various running expenses in the tax return? If you are still not aware, we are here to discuss the most important points you should know regarding these claims.
You should remember that if your home office is set in a shared room or in a room that serves any other purpose as well, expenses can be claimed only for the hours you use it as your office. While this is just one fact, there are quite a few other important factors and deductions that you should know about. Knowing about these points will help you avoid the common mistakes that most people do like claiming too high amounts or not maintaining proper records. So, let’s take a look:
You can claim running and occupancy costs if you work from home and have set an area specifically for office purposes. If you do your business anywhere else, like an office, but sometimes do your work at home, only running expenses can be claimed, even if you set an area aside in the home area for those specific occasions. You can claim the following home office costs.
Occupancy expenses will include rent, land taxes, mortgage interests, and premiums for house insurance. The last-mentioned cost is applicable in some limited circumstances.
Heating is necessary for the winter, so as cooling for the summer. You will also need light in your office. Thus, you can claim a percentage of the different household utility bills related to using these facilities during office hours. However, you cannot claim the deductions for the periods where you have used the space for any other purpose or the bills related to the different parts of the household.
Another work from home tax deduction you can claim in 2021 is the costs related to running the office equipment. These costs include costs for telephones, printers, and computers. You can either claim the full expense (if the total cost is less than $300) or claim a decline in the value (if the items cost $300 or more).
While working, you will always need to call your staff, customers, employer, or clients. You can show bills for these calls made on mobiles or any rented phone and claim a portion of the total amount.
Setting up an office will require keeping different furniture items like bookshelves, desks, or cupboards. If the furniture is related to office purposes, you can claim a tax deduction for it.
If you buy different technological items in the home office, you can claim a yearly deduction for work-related purposes. These items may include laptops, computers, tablets, printers, or mobile phones.
In addition, you can claim other work-related costs too. These costs include stationery, cleaning, and computer running costs (like printer inks or repairing costs), internet and telephone costs, and furniture restoring costs.
If you correctly follow the rules while calculating the total amount and have substantial authentication to support your claim, you can claim any amount you think you can receive.
In 2021, there are three methods that you can use to calculate the total deductions, amongst which you should choose the right one to save money.
The shortcut method has been launched recently due to the outbreak of the COVID-19 pandemic. 80 cents can be claimed as deductions for every hour you have worked from March 1, 2020. The benefits are as follows.
It specifically benefits people who work from a shared room or space in their home, like the kitchen table or living room. Before this method, people would generally require a separate space for their office to claim deductions for heating or cooling costs.
It is now easy to claim the expenses. The only thing you require is a properly maintained record of hours of your ‘work from home. You can keep a diary or a timesheet to show as evidence.
In the fixed-rate method, you can claim a deduction of 52 cents/hour you have worked in your home office. Unlike the shortcut method, a separate work area in the home will be required to claim the expenses. This area can be a converted room, a shed, or a home office. The costs you can claim using this method include work-related internet and phone costs, computer consumables, costs for stationery like ink and paper, and a decline in value of office equipment like computers, phones, and laptops. However, you cannot claim expenses for furniture repairs. For this method, too, you should maintain good bills and receipts. The benefits are as follows.
Compared to the shortcut method, this method will help you get a higher amount of deductions.
This method is also simple to use.
The third method option you can use is the actual cost method, where you can claim the costs incurred directly from working from home. As it requires specific details for all the expenses, it takes more time than the other two. For example, if you want to claim electricity bills, you have to calculate the number of hours you have used the electrical equipment and the expense for the power per kilowatt. The benefits are as follows.
If you have lots of expenses, then it will be the best option for you.
It helps people get much larger deductions compared to the other two methods.
Calculating all the expenses and claiming them at the time of tax return can be exhausting. That is why we always recommend hiring a professional tax return agent who can do the job for you. For help, you can get in touch with experts at Palladium, who will surely walk you through the entire process.