You can deduct all or some of your internet expenses and online fees depending on what you are using them for. With the Tax Cut and Jobs Act of 2017, the rules changed regarding who can write off business expenses. Based on how much you might be paying for your internet connections and various online subscriptions, you might be able to write off thousands of dollars worth of expenses each year.
Who Can Deduct?
Up until the TCJA was passed in 2017, both employees and independent contractors could write off business-related taxes to reduce their personal income tax liabilities. If you were employed, you could write off business-related expenses your employer didn’t reimburse you for, such as an internet connection, workshop fee or parking. With the passage of the TJCA, employees are no longer allowed to write off business expenses they pay for personally.
Contractors and small-business owners can still write off business-related expenses, including internet connections and online subscriptions to business-related websites.
Standard Deduction vs. Itemizing
Before you decide to start calculating how many of your online expenses you can deduct, estimate whether your deductions will be greater than the standard deduction you get each year. For 2021, the standard deduction for a single person was $12,550. If your internet and other deductions will be less than that, take the standard deduction.
If you think you’ll have more expenses than the standard deduction offers, learn what you can and can’t deduct and what record-keeping you need to do to pass an audit. A tax advisor can help you.
Read More: Can You Claim a Home Office Deduction if You Rent?
What You Can Deduct
You can only deduct the part of your internet expense that relates to your business use. For example, if you use the internet primarily for personal reasons and only use it a few hours per week for business, you can only write off the percent you use for business.
If your monthly internet connection is $100 and you use the internet 20 percent for business, you can write off $20 X 12 months = $240 per year. If you have subscribed to a business website at $50 per year, you can write off the entire $50 expense. You can only take these write-offs if you are a contractor, gig worker or small-business owner.
If you are traveling for business and purchase a Wi-Fi internet connection on a plane or a cable internet connection in your hotel room, you can write that off if you’re not an employee and you are using your purchased internet connection(s) for business. If you’re an employee, during your annual review, you can present your boss with a list of business-related expenses you have incurred and ask if these can be reimbursed, either this year or going forward.
What Is a Write-Off?
When you take a $240 write-off, that doesn’t mean you reduce your tax liability by $240. It means that you reduce your taxable income by $240, and don’t pay taxes on that $240.
To use another example, let’s say you pay about 20 percent annually in personal income tax. If you write off $5,000 in business expenses, you save 0.20 X $5,000 or $1,000. So, you don’t reduce your taxes by $5,000, you reduce your tax liability by $1,000.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.