If you run a small business from home, minimise the amount of tax you pay. Finance expert Mark Bouris has the lowdown.

Whether you work from home as a blogger, a freelancer or run an online store, home-based work lets you be your own boss, and make a living on your terms. But don't spend more than you have to - knowing which tax savings you're entitled to can help make a home-based business a success.

Deductions

You can claim a deduction if you do income-producing work at home and incur expenses by using your home for that purpose. In broad terms, expenses fall into three categories: depreciation on equipment; running expenses; and occupancy expenses. The latter only applies if your home is also used as a place of business. For your home to be considered a place of business, it means you run your business from home with an area set aside exclusively for your business activity or profession.

Depreciation

Depreciation on home office equipment including furniture, computers, printer, scanner, photocopier and modem - used only partly for work purposes - is apportioned and based on a diary record, kept over a four-week period, that covers income-related and non-income-related use.

Running expenses

Running expenses are generally costs that result from you using facilities - such as electricity, gas, phone and possibly cleaning - in your home to help you run your business. A deduction covering electricity, gas, and depreciation on office furniture may be claimed using the actual amount paid, or at a fixed rate that allows you to claim these expenses at the rate of 34 cents* (see note below) for each hour you use your home office exclusively for work-related purposes. You can only claim a deduction for the business usage and not for general household expenses.

Occupancy expenses

You can generally claim the same percentage as the percentage area of your home that is used to make income (eg, if your home office is 10% of the total area of your home, then you can claim 10% of rent costs, council rates, etc). But if you opt to claim occupancy expenses, especially mortgage interest, you'll be liable to pay tax on the capital gain attributable to the business area of the home when you sell the house.

A home office expenses calculator on the ATO website helps you calculate the amount you can claim as a tax deduction for home-office expenses.

*Note: This rate was applicable in the 2010/11 tax year; advice is intended as guidance only.