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When Are Utilities Tax Deductible?

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When Are Utilities Tax Deductible?

If you're running a business, you’re probably knee-deep in expenses. And you might be wondering whether those monthly bills for keeping the lights on and your office cozy can get you a tax break. In the world of self-employment, every deduction can be a game-changer. So, we’re answering questions like what is considered a utility, what are the utilities that can be business expenses, what percentage of utilities can I claim for my home office and how to claim utilities on your taxes.

Table of contents

Key takeaways...Read more

Claiming utilities with your home office...Read more

Is cable considered a utility?...Read more

Is my cell phone considered a utility?...Read more

Are utility bills tax deductible for rental property?...Read more

How else can businesses deduct utilities?...Read more

Writing off utilities as business expenses...Read more

Key takeaways

  • Only self-employed individuals and business owners can deduct utilities from taxes.
  • Utilities are tax deductible in the form of the home office deduction, through rental property or as a separate business expense.
  • Form 8829 is the official IRS form for claiming the home office deduction.

Claiming utilities with your home office

Let’s start with the basics. What is considered a utility? In the context of tax deductions and business expenses, a utility typically refers to essential services that are necessary to operate a business or maintain a business property. Generally, business utilities include electricity, gas and water. However, most businesses also depend on WiFi to conduct their daily activities. So, is internet service considered a utility? Well, the answer isn't always straightforward. If you’re self-employed and work out of a home office, your utilities can be tax deductible with the home office deduction. For a workspace to qualify as a home office, the IRS has a few rules:
  • The space has to be exclusively used for business
  • The space has to be regularly used for business
  • The space has to be your principal place of business
As long as you meet these rules, a workspace can be a spare room, part of your living room or even half of your kitchen table. When you deduct utilities as a business expense as part of the home office deduction, you can include a portion of your internet bill. You’ll use IRS Form 8829 to claim the deduction and can include expenses like:
  • Office supplies
  • Office equipment
  • Office furniture
  • Mortgage interest (or rent)
  • Home insurance (or renters insurance)
Let’s break this down with a utilities expense example. Suppose you’re a freelance consultant. You set up a dedicated home office in a spare room in your house. This home office consists of a desk, computer, a printer and some other furniture and decorations. This room is exclusively used for your business. You have two ways to claim the home office deduction. You can use the simplified method (deduct $5 per square footage up to $1,500) or the standard method, where you can deduct some office expenses, including utilities. You decide to choose the latter. With the standard method, you’ll need to calculate the business use portion of all your furniture and bills. As you pay taxes on your utilities that you use throughout your home, you can include it when calculating your deduction. Now, you might be asking, “What percentage of utilities can I claim for my business home office?” Let’s say you do some measuring and find that your home is 2,000 square feet and your office is 300 square feet. That means your home office makes up 15% of your house. Your monthly utility bill (including your internet) is $200. So, you can deduct $360 from your self-employment taxes as a business deduction.
Infographic entitled Deducting Utilities As Part Of A Home Office showing a utilities expense example calculation.
Business deductions lower your self-employment taxes, which is great news as it helps you make reduced estimated tax payments. You can use a 1099 tax calculator to find more expenses you can write off.

Is cable considered a utility?

Unfortunately, your home cable package is not usually a utility expense example. For utilities to be tax deductible, they need to be ordinary and necessary to your business. You may be able to deduct your cable package if you run a business (like a salon or massage parlor) where you need some background entertainment for your clients. You can also deduct cable and an Airbnb host or landlord if it’s available in your rental property. It’s best to consult with a tax professional before you write it off, though.

Is my cell phone considered a utility?

Cell phone expenses are generally not considered utilities for tax deductions, especially in the context of a home office deduction or rental property expenses. Traditional utilities typically refer to essential services like electricity, gas, water and heating, which are necessary for maintaining a residence or property. However, if you use your cell phone for business purposes, like managing a home office or communicating with your tenants for rental property management, it may be deductible as a business expense. But again, you can only deduct the business portion of your phone bilI. If you have a separate business phone, you can write off 100% of the costs.

Are utility bills tax deductible for rental property?

You can deduct utility expenses from their taxes as a rental property tax deduction. Landlords can deduct any ordinary and necessary expenses related to the maintenance and operation of their rental properties to reduce their taxable rental income. Internet service is considered a utility in this case, as it’s a standard service offered as part of most rental properties. Utility expenses are typically eligible for tax deductions for rental properties, regardless of whether the property operates as a short-term rental (STR) or is only occupied for a portion of the year. Say you’re a landlord who owns several rental properties in your area. You maintain meticulous records of all utility expenses related to your properties, keeping copies of utility bills, receipts and invoices. Then, during tax season, you can claim these tax-deductible utilities on Schedule E, which is used to report rental income and expenses.
Infographic entitled What Are Deductible Utility Expenses For Landlords listing some utility expense examples.
Sometimes, you might buy a multifamily property, live in one unit, and lease out the other two. In this situation, when the owner occupies one unit, the landlord is limited to deducting only the utilities used by the tenants. This means calculating the business use percentage of your utility bill. For instance, if the monthly utility bill is $210 and all units are similar in size, as the landlord, you can claim a $140 deduction for utility expenses, given that the remaining $70 (one-third of the total bill) was used by you. Landlord business deductions don’t just include utilities, though. Repair costs, advertising, vehicle mileage, property taxes and even hiring independent contractors for construction, painting or gardening services are deductible. You can avoid paying taxes on your Airbnb income if two specific conditions are met. First, if you've rented your property for 14 days or less, and second, if you've used the property yourself for either 14 days or at least 10% of the total days you rented it to others at fair market value, your Airbnb income remains tax-free.

How else can businesses deduct utilities?

Let’s use another utility expense example. You’re an online seller specializing in pottery. You make unique clay pieces from your home studio, which is located in an old barn on your property. You have an assistant, and your studio is well-equipped with things essential for your work– running water, electricity for powering the kilns and providing gas for those high-temperature firings. Additionally, you rely on a stable internet connection and telephone services for your business communications. Come tax season, you realize that all the utility costs tied to your studio are tax-deductible since they were ordinary and necessary to your business. Your annual utility expenses were:
  • $1,200 for water
  • $2,400 for electricity
  • $1,800 for gas
  • $600 for internet
  • $480 for your phone
Since your studio was only used for your business, you can deduct 100% of these costs. That’s a $6,480 deduction! If your studio was also used for personal activities, only the business percentage of those utilities can be written off. FlyFin’s A.I. can help self-employed individuals find expenses, including utilities, that can be written off lower taxes. CPAs offer unlimited tax filing and preparation support and can answer questions like “What percentage of utilities can I deduct for my home business?” along with built-in tax calculators that can calculate everything from self-employment taxes, estimated quarterly taxes to tax penalties.

Writing off utilities as business expenses

So, you now know that utilities can be tax deductible for self-employed individuals. Let’s move on to how to write them off your taxes. If you’re claiming utilities as part of a home office, IRS Form 8829 is where you’ll do it, on Line 21. You should also report it on Line 30 of Schedule C. For landlords or Airbnb hosts, the deductible portion of utilities associated with the rented space can be reported on line 17 of your Schedule E. For dedicated home offices where 100% of utility expenses (that’s not covered by rent) can be claimed, the write off should be deducted on line 25 of your Schedule C. Self-employed individuals who operate out of a separate workspace only used for business can also deduct utilities from their taxes on Schedule C.
Infographic entitled Deducting Utilities From Taxes listing the different forms to take the utility tax deduction.
Saving all your utility bills is the most important part of claiming utilities as business expenses, so keep them all safe. You should also hold on to any documents proving that your utility bill was used for business purposes so that you keep any chance of getting audited by the IRS far, far away.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

Meals Tax Deduction

The meals and entertainment deduction in 2023 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Rent Tax Deduction

Rent is tax deductible for self-employed individuals who work from home or have a separate office space. Some states offer renters tax credits to lower state taxes.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Professional and Legal Services Tax Deduction

Legal fees are tax deductible from 1099 taxes under the legal and professional fees category on Schedule C. The category also includes consultant and tax prep fees.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Taxes and Licenses Tax Deduction

Self-employed individuals can take the license fee tax deduction on taxes and licenses that are ordinary and necessary business expenses.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology. Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes. In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.
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