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Is My Internet Bill Tax-deductible?
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Is My Internet Bill Tax-deductible?
There’s nothing better than working from home. You can roll out of bed and be at work in your cozy pajamas without needing to commute and worry about traffic jams or bad weather. The pandemic had a major impact on how businesses, employees and even freelancers conduct business, with more people telecommuting than ever before.
What's made this possible, of course, is digital technology. It has completely changed our lives in every possible way, especially how and where we conduct business. The internet provides access to a network of possibilities for anyone, including freelancers and self-employed individuals. If access to the internet is necessary for your work as a self-employed person, you might wonder whether you can write off your internet bill or at least a portion of it. Or if you’re a W-2 employee working remotely, are you eligible for an internet bill deduction?
Key takeaways:
- Deducting your internet bill depends on whether you work for yourself or are on an employer’s payroll
- You’ll need to calculate your internet business-use percentage for write-off purposes
- You have the option to take the standard deduction or itemize your deductions
Table of contents
Can I claim internet expenses if I work from home?...Read more
Are some internet costs considered nondeductible?...Read more
Can a W-2 employee deduct their internet costs?...Read more
Does the home office internet deduction cover all internet costs?...Read more
How to write off your internet bill...Read more
What can I claim on my taxes?...Read more
Can I claim internet expenses if I work from home?
The answer to this depends on whether you’re self-employed or you work for an employer.
For most self-employed people, the internet is necessary to conduct any form of business. You might have an online clothing store, run a Youtube channel or teach piano lessons to students across the country. The internet makes it possible for you to run your own business, and without it your business would not be able to flourish.
If you’re regularly doing business online and you’re self-employed, you can deduct part of your internet bill.
Conducting business online includes:
Acquiring new business or customers through various platforms Online banking for your business Sending emails to customers or vendors Monitoring analytics Researching new products or pricing information
Are some internet costs considered nondeductible?
In most cases, freelancers and independent contractors can deduct a portion of their internet bill from their taxes as a business expense. Every once in a while, you come across someone who uses their personal internet for business purposes seldomly related to the business, like paying personal bills or online streaming.
Let’s say you work for Instacart and manage most of your business on the road. You receive assignments, use the maps feature and check on your payments. Once home, you use your personal internet to create a budget for the month. Your monthly budget isn’t technically related to your line of business, and you wouldn’t be able to write off a portion of your home internet service.
Now, if you were sending work emails or reviewing your Instacart finances using your home internet, the story would be different, and a portion of your home internet bill would be tax deductible. You can always use a freelance tax calculator to find all the deductions you can claim.
Can a W-2 employee deduct their internet costs?
Sadly, no. Working from home as a W-2 employee doesn’t qualify you for any work-from-home tax write-offs. Some employers will reimburse employees for interest costs, but that’s totally up to the employer.
Before 2017, employees could write off the expenses if the expenses were 2% greater than the annual gross income. With the Tax Cuts and Jobs Act, the IRS did away with the 2% rule for employees working from home.
Does the home office internet deduction cover all internet costs?
Like most people, you probably use your home internet for both personal and business purposes. Because you can only deduct the portion of your bill that's used for business, you need to calculate your business-use percentage. This can be a bit tricky, and it requires some math, but at least this math saves you money when paying estimated quarterly taxes.
If you run your own business from 9 am to 5 pm every business day, for example, and you’re awake from 7am to 9pm, you'll need to:
- Calculate the hours you’re awake
- Calculate how many of those hours you use for business
- Divide the answer from step two by the answer in step one
- Arrive at your business-use percentage
So your business-use percentage is 41%, which means you can write off 41% of your internet bill.
How to write off your internet bill
You have two options for how to deduct your internet bill; it all depends on whether you’re taking the home office deduction.
If you have a dedicated space in your home for your home office, you use it often and it’s your primary place of work, you’re eligible to claim the home office deduction. You’ll need to calculate the deduction for your home office using IRS Form 8829. Or, you can opt for the simplified home office deduction, if you want to deduct your entire home office at once.
If you’re not taking the home office deduction, you’ll need to report your internet deduction on Schedule C and attach it to your Form 1040. With this option, you can write off part of your internet bill even if you are experiencing a loss, unlike with the home office deduction. A loss can help lower your taxable income.
What can I claim on my taxes?
When you work for yourself, you can take advantage of many self-employed tax deductions to help lower your taxable income and save some money. You can also claim the standard or itemized deduction for your personal expenses when paying income tax. Whichever route gives you the most tax savings is the obvious way to go.
The IRS sets a standard deduction amount each year that changes due to rising costs and inflation. How much you get to deduct with the standard deduction actually depends on your filing status (single, married filing separately or married filing jointly). This option is convenient, saves time and anyone can take it, even if you don’t have any deductions to itemize.
Unlike the standard deduction, the amount varies for every taxpayer when you itemize your deductions. You can claim more deductions and have the potential to save more money. It does take more time, and effort and not every item qualifies for a deduction.
If you're already claiming the internet deduction, you may be eligible for other write-offs like office expenses, rent, or mortgage interest.
It would be nice if you could just record your business expenses and be on your way. But things are never that simple with the IRS, which requires proof that you actually had a business need for the expenses you’re claiming. So start saving receipts and other proof of purchase statements. To qualify as a self-employment deduction, your business expenses need to be ordinary, like paintbrushes if you’re an artist, and also necessary, like a canvas for your paintings. Paintbrushes are an expected expense for an artist and canvas is certainly necessary.
Examples of ordinary and necessary expenses :
- Work uniforms
- Courses for a certification or license renewal
- Repairs and maintenance of business equipment
- Office supplies
- Advertising
- Office utility bills
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