How to Save on Taxes: Claiming Home Rental as a Business Expense

Many businesses have switched to remote work from home since the pandemic began and continue to do so. Did you know that you can save money on taxes by claiming your home rental as a business expense? In this article, we will explore how you can take advantage of this opportunity, and we’ll also discuss the importance of keeping your personal and business expenses separate.

What we’ll cover:

Here’s an example of how you can calculate taxes on your home rental as a business expense:

– You have a 600 SQ FT apartment and your rent is 3000 SGD/month.

– You work 8 hours/day per week (5 days) in your living room that is 1/3 of your apartment

– Monthly rent allocated to that section is: 1000 SGD.

– You work 8 hours per weekday for a month = 16% of your month spent working

Total deductible sum per month -> 1000 SGD x 16% = $160

Why Should You Keep Your Expenses Separate?

In other cases, mixing personal and business expenses can lead to complications and missed opportunities to optimise your tax position. As a business owner, it’s crucial to treat your business as a distinct entity. Here are five reasons why you should keep your expenses separate:

Tax Deductions

To qualify for tax deductions, it’s essential to have clear records of your business expenses during the financial year. Separating personal and business expenses will save you time and headaches during random tax audits.

Asset Protection

By separating your personal and business finances, you safeguard your personal assets in case your business defaults on loan payments. For example, if your business is registered as a Pte Ltd company, your personal assets cannot be claimed to satisfy the obligation.

Building Business Credit

Separating your finances helps establish a solid business credit history. Good credit ratings open doors to larger loan amounts and better repayment terms, making it easier to obtain business loans and lines of credit.

Time and Cost Savings

Maintaining separate accounts streamlines your accounting process and reduces the need for extensive bookkeeping or accounting services. Clear records allow for easier tracking of income and expenses.

Tips for Keeping Your Expenses Separate

To ensure a clear separation between personal and business expenses, consider implementing the following tips:

1. Register Your Business as a Separate Legal Entity

Take the first step towards establishing your business as a distinct entity by registering it separately. Explore different business structures to find the most suitable option.

2. Open a Separate Business Account

Maintain separate bank accounts for personal and business expenses. Consider opening a business bank account with a different bank to avoid commingling funds.

3. Implement an Accounting System

In addition to a separate checking account, employ a proper accounting system and strategy to manage your finances effectively. Consider hiring a reliable bookkeeper or accountant, or use accounting software, to track transactions and generate financial reports.

4. Set a Budget

Establish a budget for your business based on its current earnings. This practice helps prevent the need to withdraw funds from personal accounts and ensures clear separation between personal and business finances.

Let Us Help You

If you require assistance with your accounts, we’re here to help. Our accounting services cater to companies looking to establish operations in Singapore. Contact us at RMS for reliable and professional support.

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