I have a home-based business, what can I write-off?

Before we begin, let's just re-word the question. What you actually should be asking is: What can I expense? When accountants hear the word write-off it usually pertains to transferring an aged (old) receivable to a bad debt.

The first step is deciding the percentage of home costs that the business will expense.

There are two methods:
(1) a room count or (2) an actual count of square footage .
In either case it's based on the space used for the business versus the space of the entire house. Two examples:
You are using a bedroom as an office. (the house has 3 bedrooms, 2 bathrooms, a livingroom, dining room and kitchen). Therefore you are using 1 of 8 rooms or 12.5%.
Or you are using a 150 square foot room out of a 1,500 square foot apartment or 10%.
There is no right amount, as long as you feel you can justify the percentage. Note: for a small business (operating from home) the average is between 10% to 20%.

Once the percentage has been established, these are the items you can expense:

Although we tend to think of internet and phone as utilities, DO NOT include these expenses with the ones noted above.

Instead, tally up the totals of these two expenses and apportion them at a higher percentage.
For example: If you are using your home phone for business, then calculate the business portion up to 50% (not including long distance calls). For long distance charges, highlight the items specific to the business and expense that total.

For internet, it may be the opposite. Chances are you're using your home internet account for your business. If this is the case, then choose an amount that makes sense.

Just remember, these expenses are extremely individual, so do what makes sense for your family and / or home.

Once you determine the percentage it should be the same every year, unless there is a change in how much space is being used or you move and the room configurations change. If you move part way through the year, do each address separately for the appropriate months.

GAAP

Generally Accepted Accounting Principles There are seven principles (or rules). The reason I am introducing this term with this topic is as mentioned above, once the percentage has been decided, there is no reason it should change from year to year.

This follows the Consistency Principle

Text Book Definition: "This principle states that in recording events, there must be consistent applications of standards and procedures from one accounting period to the next. This is essential so that the financial statements for successive periods are reasonably comparable." (taken from the 3rd Canadian Edition of Intermediate Accounting by Welsch, Zlatkovich, Harrison, Nelson, and Zen).

Unless you're producing monthly and / or quarterly reports, it is not necessary to record these home expenses until year-end.

I recommend you keep the details on a spreadsheet.
Add each expense, ie. hydro, let's say the total for the year was $1,060 (including gst), take this and multiply by the business percentage, ie. $1,060 x 12 1/2% = $132.50 (don't forget if you have a GST account, to record the GST separately).

Bookkeeping Entry:
As these are household expenses, I am assuming the expenses were paid for on your personal bank account, therefore:
debit: Rent Factor *
debit: GST (if applicable)
credit: Owner's contribution / draw

*Rent factor is an account all the home expenses can be coded to. However, coding each separately is also done, including Rent, Insurance, Utilities, etc.

Remember to keep the receipts as backup.

The questions for expensing your car are the same as for you home.

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