Working From Home Tax Guide: The Expenses You Can And Can’t Claim

You probably spend the majority of your time working from home, if you're anything like the typical person. And while it would sound like a dream come true, the reality is that dealing with taxes under those circumstances might be a little bit difficult. Which of your expenses are tax deductible? What is it that you cannot assert? Don't be concerned about it.

We are here to be of assistance! When you work from home, there are certain expenses you can claim and others you cannot. In this guide, we will discuss both types of charges. Continue reading, and get ready to submit your taxes in an easy and stress-free manner!

Because more and more people are choosing to pursue careers that allow them to work from home, an increasing number of individuals are interested in learning which of their expenses are tax deductible and which are not. We lay down all you need to know about claiming work-related expenditures in this article for those who are self-employed or work from home. We take care of everything, from the phone and internet bills to the costs of stationery and travel!

Do you consider yourself to be one of the growing number of people who work from home? If this is the case, you might be asking what kinds of costs you can deduct from your taxes. There are certain costs that you are not qualified to deduct, but there are also a number of deductions that you could be entitled to claim.

This tutorial will walk you through the most typical charges that come along with working from home in order to better assist you in navigating the rules. Continue reading if you are interested in learning more about the tax implications of working from home, regardless of whether you own a home-based business or simply do some work from your living room.

The Tax Implications of Working From Home, Including What You Can and Cannot Claim

The way in which we do our jobs is evolving, and working remotely has become the new standard for many people. This provides a significant amount of leeway for flexibility, and in addition, your home office expenses can be written off in a variety of different ways on your tax return.

There are a lot of people who are missing out on legitimate deductions because they are unaware that they can make a claim for working from home. However, in order to prevent getting punished for an error in judgement, you need to make sure that you adhere to the guidelines at all times.

The most typical mistakes include claiming a work-related proportion for a certain kind of expense that is too high, claiming something that shouldn't be claimed at all, or simply failing to keep documents to verify the expense.

If you do any amount of work from home, whether it be full or part time, you may be eligible to deduct some of the costs associated with running a home office from your taxable income. If, on the other hand, you choose to establish your home office in a room that is used for more than one thing (such the living room or the dining room), you will only be able to deduct the costs associated with that office for the time period during which you had sole use of the space.

What Conditions Must Be Met to Reimburse Expenses When Working from Home?

If you do business from the comfort of your own home and have a dedicated space for doing so, you might be eligible to deduct some of the costs associated with owning as well as operating the space. Imagine, however, that you run your company or carry out your work in a different location (like an office), but that you do some work at home on occasion. Even if you have a specific space in your house designated as an office, you are not eligible to claim occupation expenditures in this scenario.

Home office expenses you might be able to claim include:

Occupancy expenses

Such as the rent, the interest on the mortgage, the rates, the land taxes, and the premiums on the homeowner's insurance (but only in limited circumstances).

Heating, cooling and lighting

You will need to cool down your home office in the warmer months and heat it up during the colder months. In order to see what you are doing, you will also need light. This indicates that you are eligible to make a claim for a portion of the various domestic utility costs that are associated with the time spent working at your home office. You are not permitted to make a claim, however, during the times when the space designated as your home office is being utilised for other purposes. Furthermore, you are not permitted to make a claim for the portion of your utility costs that is related to the remaining portion of your home.

Home office equipment, including computers, printers and telephones

Either the full cost (for things costing up to $300) or the fall in value (for items costing $300 or more) can be claimed as a deduction on your tax return. If you run your own business, you might be able to instantly write off any equipment you buy, regardless of how much it cost.

Work-related phone calls (including mobiles) and phone rental

If you are able to demonstrate that you are required to remain on call or make regular calls to your staff, employer, customers, or clients while you are away from your place of employment, you may be eligible to claim a portion of the cost of the line that corresponds to the proportion of time spent using it for work-related purposes.

Depreciation of home office furniture and fittings

If you have a home office and outfit it with furniture such desks, storage, and cupboards, you may be eligible to claim a deduction for the value loss of that property to the extent that it is related to the activities you perform in the course of your employment. Because of this, it is very likely that the cost will be written down over a period of several years (the "effective life" of the asset).

Depreciation of office equipment and computers

In a similar vein, if you buy technological goods to use in your home office, you can depreciate those items over the course of their life and claim a deduction each year for the portion of your income that is related to your employment. This could involve the following:

• Computers
• Laptops
• Tablets
• Mobile phones
• Printers

Other items Make sure you claim for the work-related proportion of other costs such as:

• Computer consumables (like printer ink)
• Stationery
• Telephone and internet costs
• Cleaning costs
• The expenses incurred to repair the furnishings and equipment of your home office

There is no limit placed on the total amount that you can request. However, as long as the sum that you are claiming is computed in accordance with the laws and as long as you have the relevant documentation to back up your claim, you are free to claim whatever it is that you are legally entitled to.

Methods For Deductions For Home Offices

Evidence in the form of receipts or other written records or documents

When you are claiming deductions for your home office, you need to be sure that you can back up all of your expense claims with receipts and diaries. These are the following:

• Receipts for the various pieces of apparatus that you have bought.
• Diary entries that you make to record your minor expenditures (those that total $10 or less) that do not exceed $200, or expenditures for which you are unable to obtain any type of substantiation, regardless of the amount of money spent.
• Keep a log of all of the money you spend on your home office and how it affects your day-to-day operations. In this section, you will need to provide specific information regarding the amount of time you spend working from home in comparison to other users. Maintain a journal entry for a period of at least four weeks to be representative. Calculations regarding the amount of time spent using your equipment may also fall under this category.
• Customised phone accounts that allow you to distinguish calls pertaining to work from the rest of your calls.

Australian Tax Office Rate Per Hour

You can utilise a fixed rate of 52 cents per hour for each hour that you work from home as an alternative to keeping such records, and this will allow you to account for the costs associated with your home office. The depreciation in value of office equipment, such as computers and fax machines, can also be included in using this method, however furniture is excluded from this consideration. You are not permitted to submit additional claims for specific items given the circumstances of this situation.

The following expenses cannot be deducted as part of the costs associated with a home office:

• Mortgage or interest costs
• Rates and taxes
• Depreciation on the home.

A shortcut technique has been established by the ATO to cover the period beginning on March 1, 2020 and ending on June 30, 2020. During this time, you are entitled to a deduction of $0.80 per hour of verified employment, which is sufficient to pay any and all deductible operating expenditures. Be aware, however, that if you choose this route, you will not be able to deduct any additional expenses related to working from home during that time period.

The ATO has created a shortcut technique that will cover the period beginning on March 1, 2020 and ending on June 20, 2021.

The Shortcut Method For Home Expenses

In response to the growing number of remote workers in Australia, the Australian Taxation Office (ATO) had earlier announced the shortcut technique. You are eligible for a tax deduction of 80 cents for every hour that you worked from home between the 1st of March and the 30th of June if you use the shortcut technique.

This approach takes care of everything, from the phone and data to the energy and gas, and everything in between.

• Pros – This approach is fantastic for employees who work from home and have to improvise; if you're worried about us seeing you answer emails while standing at your kitchen table, don't be. Before the advent of this technology, it was essentially necessary for you to have a specific location in your own home to use as a workspace. If you use the short cut, you can submit your claim for the deduction regardless of the location of your place of employment.
• Cons – Beginning on March 1, 2020, the shortcut can only be utilised during time spent working from home. In order to make a claim, you will need to choose another one of the following options if you started working from home before this date. Importantly, if you choose to proceed in this manner, it indicates that you cannot afterwards claim individual expenses on top of this. Therefore, if you have a significant deduction for things such as depreciation or phone/data service, you might receive a better return by employing a different strategy.

The Fixed Rate Method For Home Expenses

If you choose to calculate your deductions using the fixed-rate approach, you will be entitled to claim a deduction of $0.52 per hour for every hour that you work from home. This includes factors like the cost of power and gas, the depreciation of furniture and fittings, as well as the cost of cleaning. In order to make a claim via this method, you are required to have a specific workplace organised within your home.

After you have submitted your claim using the fixed rate, you are then able to submit individual claims for the costs of your phone and data, the depreciation of the value of technology goods, as well as the expenses of stationery and computer consumables.

• Pros – If you've kept reasonably good records of how much of your spending can be ascribed to working from home use, then this way could end up giving you a bigger return than the shortcut option. However, this is only the case if you've retained the paperwork. This could be the more beneficial choice for you if you've piled up large phone and data costs this year or if you've made significant investments in improving your home office.
• Cons – To be able to make a claim utilising the fixed-rate technique with complete assurance, the previous fiscal year must have been one in which you had a designated workspace, and you must have kept correct records throughout that time.

The Actual Cost Method For Home Expenses

The third choice available is to submit a claim for the actual amount of money spent on expenditures incurred over the previous year while working from home. If you are the type of person who keeps detailed records and already incurs a lot of money, this may be the option that might provide the largest return. However, it requires the most effort and can be rather involved.

For instance, in order to calculate the appropriate amount of your claim for the use of electricity, you will need to consider the amount of money you spent on power on a per-kilowatt basis, followed by the amount of time you spent using equipment for working from home in the most recent fiscal year. You would need to do the same thing with your phone records, itemise each call made from your account, and compute the true cost of calls and data utilised solely for work purposes.

• Pros – If you are already spending a significant amount of money, maintaining accurate records, and performing in-depth analyses are already second nature to you, and you have some spare time on your hands, then by all means, give this strategy a try.
• Cons – It may seem like an insurmountable task, especially if your records are scattered all over the place or if the amount of free time you have to devote to implementing this strategy is limited. On the other hand, this technique can be something that you want to delegate to your tax preparer.

Tax Reforms for 2021

The Australian Taxation Office (ATO) has, over the course of the past several years, introduced a number of modifications to the process by which we fill out our tax returns. Keeping up with the latest information can be challenging because the lines between work and other aspects of life continue to blur. The Low and Middle Income Tax Offset was extended for another year, all the way up to the 30th of June in 2022. This was the most significant personal tax modification. Because of this approach, 10,2 million Australians with low and intermediate incomes will not be subject to a tax increase of up to $1,080 the following year. A handful of the tax reforms aimed at businesses are also quite welcome. The deadline for carrying back losses and continuing to take advantage of full expensing has been pushed back another year, to the 30th of June in 2023.

How Do I File an Allegation?

Even though you might believe you have everything under control, even the process of filing a claim has been updated for this year. You are eligible to make a claim for the existing flat-rate allowance for working from home, which is currently set at 52 cents per hour from the ATO. This accounts for the increased expenditures of heating, cooling, and lighting, as well as the decrease in the value of the furnishings. Keeping a diary in which you record the time you start work each day, the time you finish work each day, as well as any breaks, is all that is required of you in order to make a claim for this. After that, you are eligible to receive fifty-two cents for every hour that you put in at work.

In addition, you are able to make separate claims for the job-related fraction of things such as your home internet, mobile phone fees, and other expenses that directly relate to your work, such as stationery and printer ink. This is what makes this rate different from the temporary 80 cent rate. The size of the claim is typically substantially bigger when utilising this approach as opposed to the one that uses the 80 cent rate, hence these additional charges make it a favoured choice.

The greatest strategy to maximise your return is to maximise the amount of money you may save by claiming deductions. Understanding the deductions that are specific to your occupation is the first step in achieving this goal. For instance, if you work from home, you may be eligible to deduct a variety of expenses associated with working from home, regardless of the percentage of time you spend working from home.

You also have the option of claiming the proportion of all of your operating costs that is actually connected to your work, which you will need to assess on a basis that is fair. This method is significantly more labour consuming and needs thorough documenting of all expenses; however, it typically results in a larger claim and is best computed with the assistance of your tax professional.

Tips for Increasing Your Claim

It's a common phrase, but what does it actually mean to maximise the deductions and credits you can get on your taxes? When it comes time to file your forms, it will be much simpler for you to generate bigger returns if you have taken a few of the many simple activities that may be taken to enhance your current financial situation.

One of the first things to accomplish on the path to "financial freedom" is to have a handle on your own cash flow. The more you know about your current financial situation, the more likely it is that you will be able to make better decisions that will allow the money you've worked so hard to earn to work even harder for you.

By providing Australians with transparency and enabling them to view all of their bank accounts and cards within a single platform, as well as providing them with some helpful tools, Australians will be able to get a better handle on their spending and budgeting, which will assist in lowering their debt and increasing their savings.

They are also able to discover transactions that may be tax-deductible and share this information with their Tax Agent. By doing so, they can ensure that they receive the largest refund possible when it comes time to file their taxes.

Is There Anything That I Won't Be Able to Claim?

In our experience, the last thing you want is for auditors from the ATO to come knocking on your door, so it is important to be aware of the things that you are not permitted to claim. It should come as no surprise that you are not allowed to submit a claim for the cost of milk, tea, coffee, or any other domestic items that your employer may have bought for on the job. You also cannot deduct expenses linked with homeschooling your children, such as the cost of purchasing desks and iPads for them.

However, it is important to keep in mind that individuals who conduct a business out of their homes run the risk of having their exemption from the Capital Gains Tax on their property reduced in proportion to the portion of the home that is utilised for commercial purposes. The following items are not eligible for reimbursement during the current fiscal year:

• Articles for the home
• Expenses that are linked with educating children at home
• Costs associated with occupancy, including interest on the mortgage, rates, and house insurance

Typical Claim Errors

When this is taken into consideration, it is simple to make the same mistakes. Here are some of the most typical errors that Australians make while filing their tax returns.

• Inability to claim the benefits to which they are entitled - You have the legal right to request a deduction for any cost that you incurred in the process of earning your income. Don't be afraid to submit a claim for reimbursement if you've had to pay for something that was work-related and you have the receipts to back it up.

• Deductions for embellishments—You are only allowed to claim the money that you actually spent. Therefore, do not overstate deductions in order to gain a larger return, and only claim costs that you can verify you spent by submitting, for example, an invoice, receipt, or bank statement. If it is discovered that the deductions you claimed were false, you will be obliged to return the tax that you avoided together with interest at a rate of approximately 9% per year. In addition, if the Australian Taxation Office (ATO) determines that you have acted irresponsibly, you may be subject to a penalty that ranges from 25 percent to 95 percent of the amount of tax that was evaded.

• Relying on data that has been pre-filled by the ATO — In today's world, you may pre-fill a significant amount of your income information directly from the systems maintained by the ATO with only the click of a button. Be careful, though, and don't just assume that the statistics on income are accurate or comprehensive. Make sure that you always utilise your own information as the primary source data (payment summaries, etc.). Because the data came from the ATO, there are some individuals who reason that it must be accurate. This is a potentially risky assumption. Even though you pulled the information directly from the pre-filled data provided by the ATO, the burden of proof will fall on you if you exclude income and the Australian Taxation Office questions you about it.

Help is obtainable for those individuals who would like to steer clear of a challenging ATO circumstance, which is excellent news. MoneyHub is something that we would want to promote to you in addition to the usual tax guidance that we have provided. Clients are able to check their credit score, obtain a comprehensive credit report, gain access to exclusive partner offers, and monitor their income, spending, and saving habits by using the built-in Spend Tracker that is included in the newly developed and user-friendly financial management platform and credit reporting service.

The capability to identify and tag transactions that may be tax-deductible is what differentiates our platform from others, and it is the element about which we are most enthusiastic. The complete list will be available for users to download at the end of the year, at which point they can discuss it with their tax preparer. At tax time, you want to make sure you obtain the biggest possible refund, so use these features to their full potential.