When you’re a small business owner, setting up and running your home office can come at a cost. Thankfully, the Australian Taxation Office (ATO) provides taxpayers with a way to recoup some of these expenses by claiming tax deductions in their tax returns.

As the end of the financial year draws closer, here’s what you need to know about reducing your taxable income with home office tax deductions.

Make a list of your deductions

As a general rule, there are three categories of deductions when it comes to running a home office: office furniture and equipment such as computers, desks, and phones; office supplies, like paper, pens, and printer ink; and utilities and services used to run your home office, including electricity, internet, and heating and cooling.

To make sure you claim all relevant deductions on your tax return, start by breaking up your expenses into two columns: those that are used for 100% work purposes, and those that are used for both work and personal activity. For example, many of us will buy a desk that is only used for work, but we use our internet service for both work and personal reasons, making it a combined expense.

Items that are classed as 100% work expenses and cost less than $300 can be written off in full, while items over this threshold will be classified as depreciated assets and deducted as such.

For the expenses in the combined work and personal use column, you will need to determine what portion of the expense is used for work. For example, if your phone is used for 30% for work and 70% for personal reasons, you can only claim 30% of its cost as a deductible. This can get tricky, so if you’re unsure about how to calculate the relevant work usage of your deductibles, be sure to consult a professional.

Choose your method of calculation

There are two different ways you can calculate your home office deductions and it’s important to know which one is right for you and your situation.

The first option – and arguably the more popular method – is the fixed-cost method. Rather than claiming the individual cost of each expense, this option uses a fixed rate of 67 cents per hour to determine your total home office expenses. This set price incorporates all furniture, equipment, and utility expenses, so it’s important to note that you can’t claim these as separate deductions. The benefit of this method is that it’s a more simple and streamlined approach.

The second option is the actual cost method. This is where you claim the actual amount you paid for your business-related expenses. This method is great for small business owners whose work-from-home expenses are significantly higher than what the standardised rate of 67 cents per hour would account for. However, to use the actual cost method, you must keep detailed records, log books, and receipts of your expenses to calculate what percentage is used for work purposes.

Start preparing for next year’s tax lodgement

If you’re one of those people who feel that tax time always sneaks up on you, there are a few easy things you can do to prepare yourself throughout the year.

• Book an appointment in advance with a registered tax accountant to ensure you can maximise your deductions.
• For easy access to your records at tax time, scan or save all receipts and invoices for business expenses in one folder.
• Keep up to date with changing tax obligations and seek guidance where needed.

By understanding your tax obligations and rights, you can not only maximise your tax return but also make it more affordable to maintain a dedicated home office space.

Note: This article is general in nature and has been prepared for informational purposes only. It does not take into account individual circumstances and does not constitute financial advice. For personal financial advice, please consult a professional tax adviser.

Contributed by Craig Matthews, Chief Merchandise Officer at Office Brands