37 – Working from home

Out of that closet

A lot of financial planners work from home.

Some are just starting out and want to keep their costs as low as possible. Some are just fading out and want to keep their costs as low as possible. Others just like the convenience of working from home.

No lost commuting time and huge savings on car costs, parking and child care.

Seeing clients in their own homes, not in your office, is a great way to build stronger bonds: clients see you more as a friend than a cost! And you can always share an office or a meeting room with a nearby friendly firm if the need arises.

The big tax trap is claiming a % of your home costs, such as the interest on your home loan, against your assessable income. Yes, its deductible, perhaps on a floor-space basis (ie the home office floor space as a % of total floor space) but it impacts your CGT principal residence exemption. If you expect your home is not going to go up in value this may not be a problem. But if you expect your home to go up in value it is a problem.

Most homeowners keep their principal residence exemption 100% intact and choose to not claim the interest deduction.

What if you are renting?

The position is different if you are renting.

Here there is no principal residence exemption to worry about. So you can claim a % of your rent, based on floor space as a deductible home office cost.

One financial planner running her practice from her rented home claims more than 35% of her rent, ie more than $9,000, as deductible home office costs, on a floor space basis. This takes the edge off those sky-high Sydney rents.

What about your other home office costs?

All your other home office costs will be deductible. It obviously depends on how your office is set up, and how you use it day-to-day, but usually costs such as depreciation of home office furniture and equipment such as computers, printers and desks, home telephone and internet costs and an estimate of electricity costs and gas costs will be deductible.

What about the accelerated depreciation claims?

Ivan, a Dover financial planner, has a client who runs her business from home.

She likes to make a good impression on her customers, and spent $10,000 on a client couch and coffee table set, and $5,000 on a hand-made wooden desk.

She asked Ivan if the Federal Government’s 2015 Budget accelerated depreciation rules meant she could claim $15,000 depreciation in her 2015/16 income tax return.

The answer is, yes she can. These items can be claimed 100% against her assessable income. Her marginal tax rate is 39%, so this means the after tax cost of the couch and coffee table set fall to $10,150, ie $15,000 less $5,850.

The good impression helped win new customers in the first week!

More information on deductible home office expenses

The Taxpayers Association’s website has some interesting materials on home office costs and you can access this here: home office costs.

The Dover Group