It can be nice, working and living in the same building. But don’t count yourself rich if you have a home office. These are broadly the tax rules.
No misery with traffic jams and packed trains, no extra costs for renting business premises, more flexibility in working hours and no busy colleagues around you. A home office has many advantages. But whether it also pays off from a tax point of view is the question.
The Right Choices
How a home office works out for you from a tax point of view depends on many facts and circumstances. For example, for a sole proprietorship very different requirements apply than for a private limited company and it is important whether you are married (under a prenuptial agreement) or not. If you own a house, different rules apply than with a rented house. For filing taxes for small business with no income this is important.
- In addition, the rules are very complicated and subject to many changes. If you want a home office, let a specialist advise you in advance about the tax consequences.
- Business Insider briefly explains the rules for sole proprietorships. Please note: exceptions and nuances apply to many of the schemes listed below. This article only provides a general picture.
Separate entrance and toilet
As an entrepreneur, you cannot just deduct the costs for a home office for income tax. The so-called independence and income criterion must be met.
The first requirement means that the work space must be an independent part of the home. Your office must have its own entrance and its own facilities, such as sanitary facilities. In theory, you should also be able to rent the space to someone else. A normal bedroom is therefore unsuitable, but if, for example, you have converted the garage or a shed into a separate workspace, then you do meet this criterion.
It is also important that you use the workspace for the most part for your company. You must earn at least 70 percent of your income there, if you have no work space elsewhere. The number of square meters that you use exclusively for your company is also important.
The Perfect Choices
If the workspace in your home does not meet these two criteria, you are out of luck: you cannot deduct the costs of the workroom and furnishing from your income. The workspace then falls under the home ownership scheme, just like the rest of the house. You may therefore deduct the mortgage interest for the entire house in box 1.
If the workspace does meet the above criteria and if you use it for more than 90 percent for business purposes, it is mandatory as business assets. If you are below this percentage, but you use the work space for more than 10 percent for business purposes, you can choose how you designate the space as private or business assets.