How to save on taxes by claiming home rental as a business expense?

With the ongoing pandemic, many businesses have had to shift to working from home instead of their offices. In such times, you can save costs on your taxes by claiming home rental as a business expense. 

This article will share more about how you can claim home rental as a business expense and it will also share more about how you should keep your expenses separate if this model does not apply to your business. 

Here is a video for a quick overview:

An example:  

– You have a 600 SQF 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

In other cases, why should you keep your expenses separate?

Mixing the two will only create complications and leave a lot of money on the table when you are not optimising your tax positions. As a business owner, it’s crucial to treat your business as an independent entity from you.

Below there are some reasons why you should keep them separate.

  1. Tax deductions

To qualify for tax deductions, it’s essential to have all your business expenses during the financial year fully substantiated.

Having records that differentiate your personal and business expenses will save time, and extra panadol when it comes to random tax audits conducted by IRAS.

  1. Protects your assets from business liability

Separating your personal and business finances will work to your advantage should your business default on loan payments. For example, if your business is registered as a Pte Ltd company, it means that if your creditors take legal action against you for not paying off your debts, your personal assets cannot be claimed to satisfy the obligation.

  1. Builds business credit

Good credit ratings qualify you for substantial loan amounts and with better repayment terms. A perfect business credit gives you access to large business loans and helps you get lines of credit without much hassle.

The best way to grow your business credit is separating your finances, and registering your business in different credit bureaus where all your transactions and debt payments will be reported.

  1. Save time and money

Separating the two accounts can help you save time when doing your accounts or pay a smaller amount instead if you decide to hire a bookkeeper or accountant. Having clear records will help reduce the billable hours and reduce your reliance on them to only when necessary for example during tax periods. It makes it easier for you to track your income and expenditure without getting it mixed up.

Tips on keeping both expenses separate

Below there are 4 tips on how you can keep both accounts separate and how your startup company can benefit from it tremendously.

  1. Register your business as a separate legal entity

The first step to raise your business profile is to register your business as a separate entity. Take a look at our article on different business structures to learn more here.

  1. Open a separate business account

It is important to have separate bank accounts for your business and personal expenses. It is advised to open a business bank account with another bank instead. By doing this, you can avoid transferring funds from your personal account to your business account, or the other way around.

  1. Have an accounting system in place

While a separate checking account helps you keep track of all business income and expenditure, a proper accounting system and strategy will provide more help in managing your finances. 

This is the reason why many people hire a reliable bookkeeper and accountant, who can ensure that you do not mix both your expenses up and can keep track of all the records.

You can also subscribe to accounting software like Xero to raise invoices, record payments, manage payrolls, and record all business transactions.

  1. Set a budget

It is good to always set a budget for your business so that you can avoid pulling out more cash from other accounts. Setting a clear budget that is based on your company’s current earnings will help keep your personal and business finances separate.

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