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COVID-19 has disrupted business activities on a larger scale. Due to the health protocols, employers came up with a solution to work from home. In that bid to work from home, employees have created workspaces in their homes from where they now carry out their employment functions.
Given the facilities in the tax system, some of the expenses relating to an employee’s home office may be deducted from their salary for the 2021 tax year given that certain criteria are met. In this crisis on a global scale, small businesses are more prone to danger and bankruptcy. Therefore In the wake of this crisis, you may get the benefit of declaring your property a tax right off.
So what is a tax write-off, and how can it help you save money on the pretext of working from home?
We have compiled a complete guide to educate you on this matter so that you can take advantage of it.
You have heard a lot of terms such as a write-off, deductibles, expenses, exemptions, and other strange accounting terms which are likely to confuse you. Let us find its definition in simple words.
Tax write-off is the term that refers to tax deductions that reduce your taxable income. It is also called financial reduction.
It can be expressed during the taxing season when reducing taxable income.
Taxable income is the amount of your gross income the government can tax. In other words, the bigger the income, the higher the tax. Different methods can be explored for this purpose to reduce your taxable income remaining within the law.
To fall under the category of deductible, a business expense must be both ordinary and necessary. By ordinary, it means that the expense is common and accepted in your trade or business while the necessary expense is the expense is one that is helpful and appropriate for your trade or business.
However, your expenses do not fall under this category. If you have an expense for something that is used for both purposes; partly for business and partly for personal purpose then it may work in your favor. To include it in the deductible by dividing the whole expense by two and you will find the business part.
Because of the coronavirus, most people are doing work from home. Therefore, if you use part of your home for business, you may be able to deduct expenses for the business use of your home.
The Nature of Those Expenses May Fall Under Any of the Following Options:
In a recommendation of doing work from home. You will be exploiting a lot of personal resources to do the official work. More than anything, you have to allocate a place in your home for official activities. That naturally qualifies you to claim a tax write off against your home property.
However, the employee has to meet certain criteria to qualify. The first and foremost is that an employee can deduct from employment income home office rent and the cost of supplies that are directly used in performing official duties.
Second, it has to be an understanding between the employee and employer that such expenses are due because of the use of property necessary under the circumstances to fulfill the duties of employment
To make it count for the deduction of expenses in respect of workspace at home. The employee has to fulfill the requirement of more than 50% of official work from that workspace. A Form T2200 with the employee’s tax return must be filed to claim a deduction for Home Office Expenses.
In the wake of COVID-19, special relaxation is granted in terms of adding the reimbursement for the purchase of personal computer equipment up to $500 without any tax.
Read Also: What are The Tax Benefits of Owning a Home?
In the light of the Income Tax Act (“ITA”), an employee is entitled to deduct from taxable income any necessary and ordinary expense spent in discharging employment duties.
Your properties are subject to a tax write off if your workspace at home must be the place you principally perform your duties.
A Form T2200 (Declaration of Conditions of Employment) is the required document for those who aim to Deduct Home Office Expenses signed by both parties.
The Form Indicates the Following:
However, you do not need to mention that the employee’s workspace at home is the place where she “principally performs” her duties of employment in form T2200.
Note: it is advised to use this facility only where it is required and legal grounds are available and not for exploiting the tax system.
Given the hard time, most people are going through during COVID-19, it is a welcoming opportunity. You may save a few dollars against a tax write off if you are working from home. In light of the above information, if you meet the criteria of declaring your property underwrite off tax then you should not take this opportunity lightly.
The uncertainty is still looming over our heads and incorporating every factory. Which can provide us a few more days of survival is nothing less than a divine blessing.