The Home Office Edition: April 1st, 2022
Hello All,
Hope everyone’s has gotten through this April Fool’s day with a healthy dose of humour, but otherwise relatively unscathed :)
Sadly, I do not have any April Fool’s pranks for you (humour is in short supply for many accountants during tax season). Instead, I bring you information on the deadly serious topic of taxes.
Whether you are an employee or a small business owner, you can claim home office expenses as long as you worked from home, although the rules are a bit different.
If you were an employee in 2021, you may continue to claim expenses at $2 per day, similar to 2020. This is referred to as the simplified method. Revenue Canada, has increased the maximum number of days that you can claim to 250 in 2021, from 200 in 2020. I recommend calculating this carefully as once you remove weekends, you are only left with 261 days in the year. If you also deduct vacation and sick days, there is a high likelihood that many of you worked less than 250 days.
Employees may also use the detailed method instead, as explained in my blog post below. This makes more sense for those of you who paid rent, which is claimable, and may therefore lead to a higher deduction than using the simplified method. Unfortunately, if you owned your house you cannot claim mortgage interest as an employee. It is probably worth doing the calculation (which can be done directly on CRA’s website - link in my blog post) to see which one results in a higher deduction.
If you are an unincorporated small business owner, who reports their income on a T2125, then you have the option of claiming your home office as long as you don’t have another office (in which case additional criteria apply). Both rent or mortgage interest are deductible as are utilities, property taxes, heat, landscaping, snow removal and any other expenses that apply to your home as a whole or specifically to your office space. Ideally, to maximize your deduction, you should have a space in your home that is specifically dedicated to your home office i.e. not used for any other purpose. Otherwise you have to further prorate the deduction by the amount of time you work in the space (such as your living room) which reduces the deduction significantly. My second blog post explains the mechanics in further detail.
If you have specific questions about QBO, accounting or tax, don’t hesitate to send me an email at contact@montrealfinancial.ca and I will attempt to answer it in future newsletters.
Blog Post
As discussed above, a couple of articles on home office expenses - one for employees and one for small business owners:
Two (and a Half) Options for Claiming Employee Home Office Expenses in 2020
As numerous employees shifted from their offices to their homes, Revenue Canada (CRA) and accountants were deluged with questions about how they could claim home office expenses. To stave off the
Guidance on Deducting Home Office Expenses
One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to
Small Business Articles/Tips
Memorable April Fools Prank’s from Brands: Google rarely disappoints with its annual April’s Fools pranks some of which include Google Gulp - a drink promising to increase user’s intelligence, Searchable Socks and Google Nose (see here for full list). Other notable brand pranks include AirBnb allowing employees to rent out their desks and Lululemon with spray on yoga pants. Other great pranks from companies can be found here.
Tax Tip:
Some tax advice for those of you who bought, built or sold a home in 2021.
QuickBooks Tip: Home Office Expenses
Home office expenses are typically entered at the end of the year in QBO (or other accounting software). Probably the easiest way is to compile your home office expenses on a spreadsheet and then enter them as an expense in QBO (templates can easily be found through an internet search). Note that when entering an expense manually in QBO, you can enter multiple line items on one expense transaction. If you have paid for your home office through your personal (non business) account, then you can use (or create) a cash on hand bank account as the payment account.
Books and Resources
Small Business Tax Facts(Sole Proprietorships/Registered Businesses/Self Employed Workers)
This book helps you have a better understanding of tax (brackets, tax rates, deductions etc), how it applies to your unincorporated small businesses and how to do your own tax return (or at least understand what your accountant does). It also includes a comprehensive breakdown of deductible expenses, by category with special sections on more complex deductions such as home office, vehicle and capital cost allowance.
FastStart Your Corporation(Corporations)
A step by step guide to starting your small business corporation, including what you need to know about incorporation, setting up your accounting and tax considerations.
QuickStart your QuickBooks(Sole Proprietorships and Corporations)
A comprehensive guide that takes you through the many features of QBO and gives you step by step instructions on how to setup and work with QBO day to day. It is ideal for beginners who have never used QBO before and also for those who are currently using it, but have questions or need guidance.
FastStart Your Business (Sole Proprietorships)
A step by step guide for anyone who is planning to start a Canadian business or become self employed (and does not want to incorporate) and wants to know what they need to do or simply has questions.
Small Business and Your Dividends (Corporations)
For incorporated small business owners who want to know more about small business dividends, the differences between salary vs dividends and which is better and step by step instructions on how to file your own dividend declarations (T5s).
Use discount code “special” to save 20% on any (or all) book(s) when you purchase from the website.
Please note that all books on my website are in PDF format.
If you prefer a print version, all books are also available at Amazon . Note that print versions purchased on Amazon include a complimentary PDF - you just need to email me and include proof of purchase.
Free Resources
New: Business 2022 Tax Deadline Calendar
Starting A Corporation Checklist
Start Your Business Checklist
Dividend Declarations Checklist
Small Business Tax Return Checklist
QBO Set Up Checklist.
Small Business Calculators
Previous newsletters.
Consultations
I also provide consultation services where I can answer your specific questions relating to your small business and/or finances, provide clarity and give you guidance. Additional details can be found here and here.
Note that I no longer provide ongoing accounting or tax preparation services.
Reviews/Feedback
I would love to hear your comments on my current blog posts, topic ideas for new blogs, book feedback or anything else that you want to talk to me about. You can use my feedback form or email me directly at ronika@montrealfinancial.ca.
For anyone who has purchased my books through Amazon or directly and found them useful, I would be very grateful for a review on Amazon (to leave a review you only need to have an account with Amazon even if you did not purchase the book from there).
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A little home office related amusement. Have a great weekend!
Ronika