Internet services and products are a must for any business owner. If you use these services exclusively for your business, they are fully deductible on your business tax return. However, taxpayers who run their businesses from home can usually only deduct a portion of these expenses. Employees can deduct unreimbursed Internet expenses but the deduction is subject to limitations.
Overview of Internet Expenses
As a general rule, any technology-related item that you purchase exclusively for your business is tax-deductible. This includes monthly Internet service, Internet routers, hardware, data purchases, virus protection and cloud-based services. If you use Internet products exclusively for business, 100 percent of the expense is tax-deductible. List these on your business tax return under the "Other Deductions" section and label them as Internet and telecommunication expense.
Internet and the Home Office Deduction
If your business Internet is also your home Internet, the deduction is a bit trickier. Self-employed individuals can deduct a portion of rent, utilities and Internet under the home office deduction. To qualify for the home office deduction, you must have a space in your home that you use exclusively and regularly for your home business. Places like the kitchen table, dining room and the family room don't count because those spaces aren't exclusively used for your business. If you do qualify for the home office deduction, you can write off the portion of your monthly internet that corresponds to the size of your home office relative to your house. For example, if your home office constitutes 25 percent of your home's square footage, you can write off 25 percent of your Internet bills.
Shared Internet Usage
If you don't qualify for the home office deduction, you can still write off the portion of Internet service and products you use for business. To calculate how much you can write off, determine how often you use the Internet for your home business relative to how often your family uses the Internet overall. Say you used the Internet an average of 20 hours a week for your business and your children and spouse use it another 20 hours a week in the evenings and on weekends. The percentage of Internet expenses you can write off is 20 divided by 40, or 50 percent.
Internet For Your Job
If you must have Internet access for your job and your employer doesn't reimburse you, you can deduct a portion of Internet as an unreimbursed business expense. Internet service purchased while traveling is an expense. And a taxpayer can calculate a pro-rated amount of Internet service expense based on how many days he worked from home. However, taxpayers can deduct only the amount of miscellaneous expenses that exceed 2 percent of their adjusted gross income. To itemize this deduction, taxpayers also must forgo the standard deduction.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.