Lately I have been in the middle of switching service providers for my phone and Internet service (whole series of articles brewing in there) and the whole process has gotten me thinking about the services you use and how they apply to your business.
When running a small business you often do work from home (or only do work from home). This means that various services such as your phone and Internet are used for both personal and business use. When using something for both personal and business use it can become tricky to decide how much of the original price of the service to charge to your business and how much you will pay yourself.
The first step to determining how much you can write off as a business expense is to determine if the service can be considered a business expense. Fortunately using the services for a business purpose is usually enough to actually consider an expense as valid for a business expense. If you only use the service very rarely for a business purpose you may not have a case for this being a deductible expense though. Make sure you are actually using the services for business before attempting to claim as an expense or the tax department may disallow it.
As a general rule of thumb you should make sure you have a definable usage amount for the expense. If you can define that you use the service a certain number of hours a day or some other regular use then it becomes easy to expense it, otherwise occasional use is much more difficult to correctly define an expense.
Business Expense Amounts
If you can define a percent amount of a service for business use then defining exactly how much can be expensed is very easy. When you cannot define the percentages you can use some alternative means to try to calculate the amount. One alternate calculation that could be applied (if appropriate) is the business use of home calculation. Basically you could use the percentage of the home that is your office space as the percent to use for phone or Internet service. Make sure the calculation is technically correct for the quantity of use actually being applied.
One way to avoid the difficult business expense calculations is to install a separate phone line for business purposes. This helps to avoid all the sticky situations where an expense can be denied. The same can be said for any other service you use for your business at home. As long as you follow a good receipt keeping process you should be fine with any expense as long as it is for exclusive business purposes. The other option is usually less enjoyable and that is to not claim an expense as a business expense if you have insufficient evidence of it being for business purposes.
When running a business from home there are several services that you use regularly for your business. Since you use these services for a business purpose it means that you should be able to claim at least a portion of the expense as a business expense. Knowing what and how much to claim ensures your business money will go further.