How To Maximize Your Deductions For Working From Home
To use the shortcut method, all you need to do is be able to produce a timesheet, list, or journal to show how many hours you actually worked from home. There is still roughly enough time until you are finished exercising to keep a four week diary to show your hours. Assuming your pace of work hasn’t changed too much over the course of the year, that’s enough, says Loh.
“If you worked 40 hours a week from home, 48 weeks a year – full time – that would be a deduction of about $ 1,500 on the 80 cents per hour cut method,” Loh estimates.
However, Chapman of H&R Block cautions, “The shortcut method is easy to use, but the problem is that it doesn’t always give the best performance.
Instead, most H&R Block clients use a second strategy, known as the “52 cent method”.
Basically, you can claim 52 cents for every hour worked from home to cover any increased running costs you incurred, including additional lighting, cooling, heating, powering your computer, cleaning costs. and the decline in the value of your furniture.
Then you add deductions for the work-related portion of your Internet bills, your telephone bills, office consumables such as ink cartridges and stationery, and declining value of equipment and devices, such as telephones. , computers, laptops, headphones and monitors. .
Using the 52-cent rate – and not claiming any of the above – would give a worker using Loh’s example a deduction of $ 998. That’s $ 538 less than the shortcut method, so the question is, can this worker find $ 538, or more, in fees to claim on top of the 52-cent rate?
If you’ve paid a lot for work-related phone bills, internet bills, or bought expensive hardware like a laptop, you might be better off using this method.
Equipment under $ 300 can be claimed in full in the year it is purchased. For things that cost more than $ 300, they should be depreciated over their life – and only from the date they start to be used. So, suppose you buy a laptop computer tomorrow that costs $ 2,000, you cannot claim $ 2,000 as a deduction this fiscal year. Laptops have a lifespan of about two years, so your maximum annual claim is $ 1,000. And if you only used it three weeks a year, you could only claim a small percentage of that amount.
For fans of 52 cents, also know that the ATO is cracking down on people who claim too much of their home Internet bill as work-related this year.
Said Loh: “Obviously, over the past year or so, a lot of Australians have been on the couch watching Netflix, so making sure you only claim the work-related portion of your internet spending is really crucial. “
If your internet bill is, say, $ 100 per month and therefore $ 1200 per year, “if you watch Netflix most of the time, we would expect the deduction to be closer to zero than $ 1200,” warns Loh.
For households with more than one person working at home, you should also make sure to distribute the individual usage of each person. It can get a bit complicated.
To use the 52-cent method, Loh cautions that you must also have a “dedicated workspace” in your home. It doesn’t have to be a separate room, but my dining table doesn’t matter.
“It has to be a space that is only used for work purposes. It can’t be the living room, where there is a TV and someone else is watching Netflix. If you don’t have a dedicated space like me, the shortcut method is your only real option.
Loh also cautions against blurring the lines between business and pleasure when it comes to buying devices.
“If you have fancy headphones, I don’t think you’ll be using them for work most of the time – you’ll want to use them for recreation as well – so you can’t claim a full deduction for the headphones. So it must also be reasonable.
Finally, people who have a space dedicated to working from home and who have paid to furnish it might consider using the third method of ATO, or “real method”. This is expensive and requires careful accounting to determine the actual usage costs for everything, including electricity, lighting, and heating.
Loh calls it “a pretty intense method,” and Chapman cautions that it comes with “potentially onerous justification requirements,” so if you’re interested, it might be worth consulting with a tax agent.
Me, it looks like I’m going to claim using the shortcut method. There’s the dining room table issue and I watch Netflix quite a bit.
Still, that’s about a $ 1,500 tax deduction, which is nothing to sneeze at.
You can follow Jess’ budget and financial adventures on Instagram at @moneywithjess and subscribe to her free weekly email via the Sun-Herald here and age here.