Home Office Accounting On Wave

Wave Accounting is a free online accounting platform that offers a range of features and benefits for small businesses and freelancers. It helps users manage transactions, create and send invoices, track expenses and generate financial reports. One of the key features of Wave is its ability to help users account for their home office expenses. This is particularly relevant for those with home-based businesses or those who use an office at home to supplement their physical business location. By properly accounting for home office expenses, users can reduce their taxable income.

Calculating the percentage of home expenses that can be claimed as deductions

There are two methods to calculate the percentage of home expenses that can be claimed as deductions: the percentage method and the simplified method.

The percentage method involves determining the actual expenses for your home business and calculating the percentage of your home that is allocated to your home office. This can be done by measuring the square footage of your home office and dividing it by the total area of your home. For example, if your home office is 100 square feet and your home is 500 square feet, the percentage of your home used for business is 20% (100 / 500 x 100). This percentage can then be applied to your eligible expenses, such as rent, homeowner's insurance, utilities, and repairs and maintenance.

The simplified method, on the other hand, uses a set rate multiplied by the square footage of your home office. For example, if the set rate is $5 per square foot and your home office is 100 square feet, your deduction would be $500 (5 x 100). This method is simpler but may not result in the largest possible deduction.

It is important to note that you can only claim deductions for expenses that are used solely for your home office or business activity. Additionally, you must be a registered business owner or independent contractor to claim home office deductions.

When calculating your deductions, be sure to keep accurate records of your expenses and the portion of your home used for business. This may include receipts, bills, and other proof of expenses.

Splitting transactions for home office receipts

To split transactions for home office receipts, follow these steps:

• Navigate to the Transactions page by clicking on "Accounting" in the menu on the left side of your screen.
• Find the transaction you wish to split and click on the dropdown arrow to the right. Select "Edit more details".
• Click on the "Split transaction" button.
• Enter the amounts accordingly, ensuring that the total of the splits matches the total transaction amount.
• Categorize the splits appropriately, differentiating between business and personal expenses. For example, if you're splitting a fuel receipt, you can assign the business portion to "Home Office Costs" and the personal portion to "Personal Motoring".
• Save your changes.

It's important to note that when splitting transactions with tax, the full tax amount will be attached to the first part by default. To rectify this, click "Edit" next to the tax amount and update it. You can then add sales taxes to the other parts of the transaction.

Additionally, if you're receiving a payment that covers multiple invoices, you can split the transaction into the respective invoice amounts and then apply the invoice payments accordingly. This ensures that your records align with your bank statement during reconciliation.

Tracking expenses and managing receipts

Separate Business and Personal Expenses:

It is essential to separate your business expenses from your personal expenses. This clear separation will make it easier for you to track and manage your receipts effectively. Open a separate business bank account, savings account, and merchant services account for your business transactions. Get a dedicated business credit or debit card to keep your credit history organised and easily accessible.

Choose the Right Accounting Software:

Select an accounting software that suits your needs. Wave, for example, offers a Starter Plan for bookkeeping and invoicing basics and a Pro Plan with additional money management features. The right software will help you automate, organise, and categorise your expenses and transactions. It will also enable you to connect your bank accounts and automatically import transactions, saving you time on manual receipt entry.

Connect Your Financial Institutions:

Integrate your chosen accounting software with your bank accounts and other financial institutions. This will allow for the automatic download of transactions and categorisation of expenses. You can also import daily transactions, download bank statements, and reconcile statements easily. This integration ensures accurate income and expense records, saving you time and effort.

File Your Receipts:

Ensure you file your receipts regularly and consistently. The IRS requires you to keep paper receipts and documents like bank statements for at least three years. Use folders to store paper receipts, and include the purpose of each purchase. Label and arrange the folders by date or category to stay organised. Additionally, utilise accounting software mobile apps or business expense tracker apps to store receipts digitally. Scan receipts with your phone camera and store them in the cloud. These digital solutions sync with your account books, making it easier to track each transaction.

Track All Expenses:

Remember to track all relevant expenses, including mileage, travel, flight expenses, meals, and more. Keep the corresponding receipts and ensure they are categorised appropriately.

Review Your Expenses Regularly:

Periodically review your expenses by examining the numbers, analysing trends, and correcting any errors. This review process will give you insights into your business's financial status and help you make informed decisions to support your business's growth.

Understand Tax Deductions:

Educate yourself on which business expenses are tax-deductible. For example, the IRS offers tax deductions for rent and mortgage payments, home office expenses, employee benefits, retirement plans, and equipment maintenance. Understanding these deductions will help you maximise your tax benefits.

By following these steps and tips, you can effectively track expenses and manage receipts for your home office, ensuring accurate record-keeping and financial insights for your business.

Categorising transactions

To categorise a transaction, click on the category field of the transaction in the Transactions page. You will then see a list of accounts to choose from. If you don't see the account you want, you can create a custom account by selecting "Add a new category" at the bottom of the list. This will create a new account under your Chart of Accounts.

You can also split a transaction to assign it to multiple categories in your Wave account. This is useful if you need to split a transaction for receipts, such as insurance or utilities.

Wave also offers an auto-categorisation feature, which automatically categorises transactions for you. You can filter transactions by "Categorizations" or "Merges" to view transactions that were automatically categorised.

In addition to categorising transactions, you can also add notes and attachments to transactions in Wave. Notes can be added in the transaction detail view, while attachments such as receipts can be uploaded by clicking on the dropdown menu to the right of a transaction and selecting "Upload Receipt".

Generating financial reports

• Financial statements
• Taxes
• Payroll
• Customers
• Vendors
• Detailed reporting

These reports can be exported in a CSV or PDF format.

Profit & Loss Report

This report shows the total income and expenses for a selected period. You can compare reporting periods and see a summary of your total income, minus the total cost of goods sold, and minus total operating expenses, to generate a net profit total.

Balance Sheet

The Balance Sheet provides an overview of your business's assets, liabilities, and equity accounts. It also includes a display of the total funds between cash and bank accounts, accounts receivable, and accounts payable.

Cash Flow Statement

This report shows how much money is moving in and out of your business and how much usable cash is available at a given time. You can compare the net cash change between two periods and see a breakdown of the differences in cash flow by account type.

Sales Tax Report

The Sales Tax Report shows the tax paid on sales and purchases, allowing you to file your taxes accurately. You can generate a cash basis Sales Tax Report if you're in a region that conducts tax reporting on a cash basis.

Income by Customer Report

This report shows all your income broken down by each customer, including paid and unpaid income.

Purchases by Vendor Report

The Purchases by Vendor Report shows a breakdown of your purchases for each vendor, including unpaid and paid bills or expense transactions.

Aged Receivables & Aged Payables Reports

The Aged Receivables Report shows how much money is due to you and who owes it, while the Aged Payables Report details how much you owe your vendors and if any amounts are overdue.

Account Balances Report

This report provides the balances of each of your accounts in one place, along with a breakdown of the ending balance, debits, credits, and net movement for each account.

Trial Balance Report

Similar to the Account Balances Report, the Trial Balance Report provides a breakdown of the balances of your accounts, but the balances are determined by the end date of the report and the starting balance in the account.

Account Transactions Report

The Account Transactions Report offers a detailed view of all transactions by account, with the option to filter for a single account or a specific vendor or customer. It includes information on the account type and its location in your Chart of Accounts.

These reports can help you gain deeper insights into your business's financial health, make informed decisions, and provide useful information for filing taxes.

Frequently asked questions