Home Office Expenses: Spreadsheet Strategy

Creating a home office expense spreadsheet can be a useful way to keep track of your expenses and ensure you're maximising your tax deductions. This is particularly important if you're self-employed or running a small business from home, as it can be tricky to keep on top of what you can and can't claim for. A spreadsheet can help you categorise and calculate your expenses, making it easier to determine the total amount you can deduct at the end of the tax year.

There are several free home office expense spreadsheet templates available online, such as those provided by Keeper Tax, NerdWallet, and HelloBonsai. These can be downloaded and used in programs like Microsoft Excel or Google Sheets. When creating your spreadsheet, it's a good idea to break your expenses into categories such as office equipment, office supplies, software, utilities, and other hardware. You can then calculate the total expense for each category per month, and keep track of your expenses year-round.

Calculating the percentage of home office expenses

The IRS outlines two ways to calculate the percentage of your home office expenses that are deductible. The first is the "regular" method, which calculates your actual expenses, and the second is the simplified method, which is faster but may not yield as many deductions.

The "Regular" Method

The regular method requires you to calculate the following:

• Which of your business expenses are direct, indirect, or unrelated. Direct expenses are things like painting or repairs only in the area used for business. Indirect expenses are expenses for the entire home, like insurance, utilities, and general repairs that also benefit your home office.
• The percentage of your home used for business purposes. To figure this out, you can either:

• Divide the area (length multiplied by width) used for business by the total area of your home.
• If the rooms in your home are all about the same size, divide the number of rooms used for business by the total number of rooms in your home.

The "Simplified" Method

The simplified method was introduced in 2013 and is calculated as follows:

• Multiply the allowable area of your home used for business by $5 (or less if the qualified business use is for a daycare that uses space in your home on a regular but not exclusive basis).
• Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. If these expenses are greater than the gross income, then you cannot take a deduction.
• Take the smaller of the amounts from steps 1 and 2. This is the amount you can deduct for the qualified business use of your home using the simplified method.

Other Considerations

• If your expenses are less than your gross income from the business conducted in your home, all your expenses are deductible. If your expenses exceed your gross income, only a portion of them can be deducted.
• If you share your home office space with another person, you can't both deduct the same space.
• If you have a separate, unattached structure that you use as a home office, you don't have to meet the "principal place of business" or "dealing with clients" criteria.

Direct and indirect expenses

When creating a home office expense spreadsheet, it is important to understand the difference between direct and indirect expenses. Direct expenses are costs linked to producing a specific good or service and can be directly connected to a cost object. For example, in the case of a home office, direct expenses would include home office furniture, a desktop computer and accessories, an office light fixture, and expenses for painting the office. These things are used only in the office and are therefore considered direct expenses. These direct expenses have a business-use percentage of 100%, so they are 100% tax-deductible.

On the other hand, indirect expenses are not directly associated with a particular product or service and are often referred to as overhead costs. For a home office, this could include rent, utilities, and repairs that apply to the whole residence. These costs are necessary for the business to function but are not tied to a specific product or service. You can only deduct a certain percentage of these expenses, specifically, your business-use percentage. This is calculated based on the portion of your home that is used for business activities.

It is important to distinguish between direct and indirect expenses when filing your taxes, as some costs may be tax-deductible. For example, direct costs such as repairs to business equipment may be tax-deductible, while indirect costs such as rent, utilities, and certain insurance costs may also be deductible. Consulting an accountant or bookkeeper can help determine which costs qualify.

Claiming home telephone expenses

When it comes to claiming expenses for home telephone services, there are a few things to keep in mind. Firstly, you can only claim expenses for work-related usage, and you must have records to support your claim. This means that if you use your home phone for both private and work purposes, you will need to calculate the percentage of work-related usage and claim only that portion as a deduction.

To calculate your work-related usage, you can keep a diary for a continuous 4-week period to record your work and private calls, as well as the data used for each. This will help you determine the pattern of usage, which you can then apply to the full income year to calculate your total deduction. It's important to note that you should only include the cost of phone calls and data usage related to your work duties when calculating your deduction.

If you have a separate business line, you can claim the full cost of this for both income tax and GST. However, if you make any private calls on the business line, you will need to adjust your claim accordingly. Additionally, if you have a landline that is also used for business purposes, you can claim a deduction of 50% of the rental cost. Business-related toll calls on this line are 100% deductible.

It's important to keep accurate records of your expenses and usage to support your claims. These records may include diary entries, electronic diary records, and bills for telephone services. By following these guidelines, you can effectively claim home telephone expenses and ensure that your claims are compliant with tax regulations.

Tracking expenses with a spreadsheet

Choose a Platform

Start by deciding which platform you want to use for your spreadsheet. Microsoft Excel and Google Sheets are two popular options, both offering a range of budgeting templates to choose from. Excel has a variety of free and premium budgeting templates, while Google Sheets provides free storage and the ability to access your budget from anywhere.

Break Down Expenses into Categories

To effectively track your expenses, break them down into categories. Common categories for a home office expense spreadsheet include:

• Office equipment (computers, keyboards, etc.)
• Office supplies (paper, pens, calendars)
• Software
• Other hardware (phones, headphones)
• Utilities (phone bill, electric bill)

You can add or remove categories based on your specific needs.

Input Expenses Regularly

Consistency is key when it comes to expense tracking. Make sure to input your expenses regularly, whether it's daily, weekly, or monthly. This will help you stay on top of your finances and make it easier to identify any areas where you may be overspending.

Utilize Formulas

Take advantage of spreadsheet formulas to automate calculations. For example, use the SUM function to total your expenses within each category. This will save you time and reduce the risk of manual calculation errors.

Track Monthly Expenses

It's important to track your expenses over time, so consider creating separate sheets for each month of the year. This will allow you to easily compare your spending from month to month and identify any trends or areas for improvement.

Keep Receipts and Records

Make sure to keep receipts and records of all your expenses. This will come in handy when it's time to file your taxes, as you'll need to provide proof of your deductions. Additionally, keeping records will help you accurately input your expenses into your spreadsheet.

Calculate the Percentage of Business Use

If you're using your home office for business purposes, you'll need to calculate the percentage of your home that is dedicated to business use. This is important for claiming tax deductions. Measure the square footage of your home office and divide it by the total square footage of your home to get the percentage.

Stay Organized

Maintain a well-organized spreadsheet by using clear and consistent formatting. Use columns for different categories, include dates for each expense, and consider using colour-coding or highlighting to identify different types of expenses.

By following these tips, you'll be well on your way to creating an effective home office expense spreadsheet. Remember to choose a platform that suits your needs, break down expenses into categories, input expenses regularly, utilize formulas for calculations, track expenses over time, and keep detailed records.

Calculating your deduction limit

When it comes to calculating your deduction limit for home office expenses, there are two methods you can use: the simplified method and the actual expenses method.

The Simplified Method

The simplified method is a straightforward way to calculate your home office deduction. It involves multiplying the square footage of your home office space by a prescribed rate. The current rate is $5 per square foot for up to 300 square feet of space, with a maximum deduction of $1,500 per year. This method simplifies the calculation and record-keeping requirements, making it a convenient option for those with smaller home offices.

The Actual Expenses Method

The actual expenses method is the more complex of the two methods. It involves measuring your actual expenditures related to your home office against your overall residence expenses. This method allows you to deduct various expenses, such as mortgage interest, taxes, maintenance, repairs, insurance, utilities, and more. You can use Form 8829 to determine the specific expenses you can deduct. This method may be more beneficial if your home office occupies a larger portion of your home.

It's important to note that the choice between the simplified method and the actual expenses method depends on which option will provide you with a larger tax deduction. Additionally, the actual expenses method may have implications for capital gains tax when you sell your home, while the simplified method does not.

Requirements for Claiming Home Office Deduction

To claim the home office deduction, there are a few requirements you must meet. Firstly, you must use your home office regularly and exclusively for business or work-related activities. This means that the space should be dedicated solely to work and cannot be used for other purposes. Secondly, your home office must be your principal place of business. This means that you conduct administrative or management activities from your home office, and there is no other fixed location where you perform these duties.

Frequently asked questions