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If you're self-employed or working remotely, you may be asking yourself, "How much of my internet can I deduct for business expenses?"
Well, the answer is a little complex, but we'll break it down for you in this article. Let's explore what you need to deduce your internet business expense and what is required to qualify.
Can I deduct my internet bill as a business expense?
In case you're self-employed, a freelancer, or the owner of a small business working from home, then you may be able to deduct a portion of your internet bill as a business expense when filling out your tax forms.
The idea behind the deduction is to declare the time you use the internet for work. If the claim is reasonable, then the IRS will recognize it as a legitimate deductible business expense.
However, if you work full-time for an employer through a W-2 form, you won't be able to claim this deduction. Additionally, you can only deduct up to 40% of your internet bill as a business expense, as the IRS considers that you use it for personal use too.
Deducting your home internet as a business expense if you’re self-employed
If you're self-employed, deducting part of your internet bill as a business expense can considerably reduce your tax bill. But there are some requirements you must keep in mind before filing for a deduction.
What is counted as legitimately using the internet for work?
To understand what is considered a legitimate use of the internet for work, we first have to think about what your business needs to run.
As a self-employed worker or freelancer, you may need the internet to answer client emails, participate in video conferences with business partners, or use online tools to manage your business. These are all considered legitimate uses by the IRS.
If your business uses a website to advertise for businesses, sell products, or reach out to clients, the time spent managing it can also be deducted as a business expense.
What doesn’t count?
Now that we understand what counts, it's important to note that what doesn't count mostly depends on the intent of the tasks you're performing and how they relate to your work.
For example, if you're using Google Sheets to keep track of your personal finances, the time you spend using it won't qualify for a deduction. However, if you're using Google Sheets to track your business' finances, stock, or logistics, then it would qualify. Additionally, activities like VoIP calls to clients, emailing suppliers, or scheduling appointments also qualify for a deduction.
Every factor is taken into account to determine how much of a deduction you may qualify for. But even if you don't use the internet for work all the time, you should still try to get a deduction. Most people who do remote work from home can qualify for a deduction to some extent, even if it's a small one.
If you’re a W-2 employee, you can’t deduct the internet from your taxes.
If you work under a W-2 form, then you can't deduct internet costs from your taxes. However, if your internet bill puts your income below the state minimum wage, your employer may be legally bound to reimburse your internet bill. This depends on which state you live in.
How to figure out how much of your home internet bill you can deduct
The IRS explains that you can only deduct the time you use for activities directly related to your work from your internet bill.
For example, if you estimate that 70% of your internet use is personal and 30% is work-related, you can only deduct 30% from your tax bill. To figure out how much of your internet use is deductible, we need to consider a few things.
1. Calculate the percent of your WiFi/internet you’re using for work-related tasks.
A great way to calculate how much of your internet usage is work-related is to divide the total time you're awake by the total time you spend working online in a week.
The resulting number will be the percentage you can safely claim as a tax deduction from your home internet bill as a business expense. However, filling out an unreasonable percentage can flag your business for an IRS audit. So even if you qualify for 100%, it's safer to claim a lower value of around 40% maximum.
2. Determine whether or not you’ll also get a home office deduction.
If getting a tax deduction from your internet bills wasn't great enough already, then you can also get a home office deduction.
To qualify for a home office tax deduction as a business expense, you need a dedicated workspace at home used only for work. The space can be any room in your home or an area within a room that can be split to be fully dedicated to work. The important part is that the space is fully dedicated to work.
If you meet the qualifications, grab an 8829 form and follow it step-by-step to calculate your home office reduction. If you don't want to fill out the entire form, there's also the option to ask for a simplified home office deduction. The simplified form uses a flat rate of $5 per square foot of office space, up to a maximum of 300 square feet.
If you don't want to claim a home office space, you can use Schedule C (form 1040) to file your taxes.
If you’re self-employed or work from home, you can save money on your taxes by deducting part of your internet bill
If you're self-employed or work from home, you can deduct a decent portion of your internet bill and even your home office as a business expense from your taxes. It's a great way to add that little bit of extra income that you can use to get a fiber internet plan for a better online experience.
So if you need reliable internet with high speeds at a great price to improve your home office, we can help you. Contact Fidium Fiber right now and check out our plans. With our fiber network, you can run your business from home with a stable and smooth connection.
