This guide outlines many work from home tax deductions you may not have considered including.
Are you one of the many experiencing, perhaps for the first time, what it’s like to work from home? It’s something about one-third of the workforce do regularly as a matter of course, and yet something some employers resisted… until the COVID-19 pandemic made them.
Overview: work from home tax deductions
Working from home does provide flexibility in the way we work or the way a business operates. It can give you a sense of independence. It can also see you incurring work-related bills you don’t usually even think about. Two common work from home tax deductions come unstuck for employees working from home are “running costs” and what is termed “occupancy expenses” and there are three methods to claim – short cut method, the fixed rate method, or the actual cost method.
Running costs
Have you ever stopped to think about the costs your employer pays for the safe and comfortable environment you usually work in? Air-conditioning, lighting and cleaning are necessary running expenses. In working from home, you may be able to claim work from home tax deductions amount for your utilities, furniture and furnishings in your designated home office space that are needed for work – and their repair – are possible tax deductions. So are computer consumables such as printer paper and ink, as well as stationery. These can add up, big time.
Phone and internet
Are you using your own phone or internet for work? To claim more than $50, keep records for four weeks or if minimal use the shortcut method. If you’re paying for these services, you can claim work-related amounts at 25c/call to a landline, 75c/call to a mobile and 10c/text, but you need to keep records of how much use was genuinely work-related. If minimal use, it can be caught up in the shortcut method.
Where is your desk?
It’s no longer important to have a separate space to make some work from home tax deductions. It’s now ok to be ‘working from home’ anywhere in the home for the shortcut method.
If you are using the fixed rate method, the tax office considers personal use – and that of any others in the household – as well as when and where you’re working at home. For example, if you set up on the dining table in a combined lounge-dining area and the kids are watching TV in that space during some of that time, and you have the air-con and lights on for all, you can only claim the cost of your laptop because the likelihood is, the TV and lights and air-con would be on anyway.
Division of space can also be very important psychologically for those who are used to having time commuting to ‘unwind’ or ‘let go’. Depending on your personality, you may struggle at home with the lure of Netflix only a few metres away or not being able to contain your work in ‘work hours’. Working from home does not mean 24/7!
Home proof
The tax office will need proof that these work from home tax deductions were incurred as expenses during the coronavirus pandemic, at home, because you couldn’t go to work but could keep working.
Diary entries of small expenses ($10 or less) are good, up to $200. Itemised phone accounts help you highlight what was work and what wasn’t. Do keep receipts or written evidence of anything otherwise that you pay for, and don’t receive reimbursement from your employer. You can’t claim from your employer and the ATO.
Home sweet tax-free home
A big mistake I see when people work from home is claiming the interest of the mortgage as work from home tax deductions. Home is home and, as big an outlay as that purchase may be, as your principal place of residence, any gains on its value are tax-free as long as it is still ‘home’. Investors can claim on their mortgage interest costs but not homeowners, and the tax office sees both very differently. Avoid capital gains tax – check with your accountant before claiming your home mortgage interest as a deduction.
How much do I claim?
The new legislation allows a shortcut method of 80 cents per work hour for additional expenses including electricity, cooling/heating, depreciation, cleaning, phone, internet. See specific COVID-19 legislation details here. Depending on usage and impact to your home, you may benefit more from the fixed rate method or the actual cost method.
Seek out your accountant
With tools like Taxcaster readily available, figuring out your tax situation has become easier than ever. Still though, some people prefer the ease and accuracy of a professional to give them peace-of-mind.
With that being said, a tax accountant can ensure you’re getting the most out of your tax return, and their fees are tax deductible. You can claim the cost of travelling to see your accountant and fees for preparing and lodging your tax return, as well as a range of other costs associated with managing your tax affairs such as audit insurance that can help if you are investigated by the ATO.
This is even more important because the rules have changed for COVID-19 developments and will possibly continue to change as the situation progresses.
The bottom line
Most people would rather do anything than spend more time thinking about their tax return but thinking a little harder about what you can claim could really pay off with work from home tax deductions.
The tax office is big, but it has great data analytics so you can’t fly under the radar as easily as you might think. It’s best to consult with your accountant if you plan on making some more unique work from home tax deductions. Remember, their fees are tax deductible so there’s no excuse!
