As a self-employed individual who works from home, it's important to keep detailed records of any home renovations, improvements, or repairs for tax purposes.
Certain home improvement expenses may be deductible if they directly, or indirectly, impact your home office. Direct expenses are 100% deductible. An example of a direct expense is painting & decorating the office space. Indirect expenses impact other areas of the home and therefore only a percentage of the expense can be allocated to the home office. An example of an indirect expense would be replacing your roof. The most important thing to remember is to document these expenses.
Step 1: Set Up a Running Spreadsheet
Create a spreadsheet that you can easily update as you receive invoices or make payments for home renovations. This will allow you to keep a detailed, organized record that is easy to reference when filing your taxes. Here's what you should include:
Key Information to Track:
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Date of Invoice
The date the renovation work was invoiced. This helps you track the timing of the expenses and ensures they are recorded in the correct tax year. -
Invoice Number
The invoice number makes it easier to reference specific charges when reviewing your records or if you need to contact a vendor for any issues. -
Vendor
Include the name of the company or individual who performed the work. This helps to verify the source of the expense in case you need to provide proof of payment or need additional details. -
Description of Work Done
Write a short, clear description of the work that was done. This helps identify whether the renovation is related to your home office, such as installing a new office space or improving the infrastructure (like adding lighting or soundproofing), or general home repairs that may not be fully deductible. -
Amount
Record the total amount billed for the transaction. This is the amount you'll need for tax deduction purposes if the improvement qualifies. -
Date Paid
This will help you track when the payment was made, ensuring you have a clear record of your cash flow and expenses. -
Bank or Credit Card Account Paid From
Document whether the payment was made from your personal bank account or a business account. This is especially important if you're using business funds to pay for home office-related renovations. This helps distinguish personal expenses from business expenses.
Step 2: Save All Supporting Documentation
Always keep copies of your invoices, receipts, and proof of payment (such as bank or credit card statements) for at least seven years. These documents may be required in the event of an audit, and having them organized and easily accessible will save you time and stress. You can always upload those to your Formations account for easy tracking.