Another tax question-- deductions for utilities

[Deleted]

I think I am almost done!  So excited.  

I think I understand how to calculate out the deduction for my electric/gas for the IRS-- my home office is 12% of my house, so I add up those bills for the year, and then input 12% of the cost?

How would I figure deductions for internet and cell phone?  I use both extensively for eBay, but it doesn't seem as clear cut as the other utilities.  

[val2525]

No.

All expenses related to home office are entered in full (not %) on Form 8829. On Form 8829, the calculation is done based on square footage or # of rooms that results in the actual deduction.

Two methods available:

www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction

[val2525]

Internet can go on the schedule C as direct expense, based on % usage (i.e., 100%, 75%, etc - whatever % is actual business use). It's not really considered a utility for home office purposes.

Cell phone is handled the same way as internet - deduct the business use %. Example, internet $100/mo, cell phone $50/mo, Biz use of internet 90%; biz use of cell 50%. Deduction would be

Internet expense $1080 (90% of $100 is $90 mo x 12)
cell phone expense $300 (50% of $50 is $25 mo x 12)

[labbypaws]

Easier to use the standard calculation. From what I have read you are less likely to be audited.

you posted while I was posting.  This is for the use of home office.

[Deleted]

Just when I think I understand.... I don't. Thank you Val.

Labby-- thank you as well.  I posted as you were posting.  

I really appreciate the help.  This has been an easier process because of the help.

[val2525]

We calculate both ways at our office, and take the most beneficial to the client.

However - one perk of the new simplified method is there is nothing to recapture if you sell your house.

[Deleted]

Meaning, that when I sell my house, there aren't any repercussions for claiming the office space square footage?

[val2525]

More or less, yes. No depreciation to recapture. But if you don't plan to sell, or sell for a very long time from now, it's not as big an issue as it sounds like it is.

But if I remember correctly, you may get a lower deduction by using the simplified method but no recapture worries.

OTOH, depending on size of office and expenses, some of our clients got a larger deduction with the simplified method.

[Deleted]

Another question-- I am adding up the cell phone payments for the year. Only my line was used for the business, do I need to only claim what I paid for my line?  
We have 4 lines on our cell bill, so I would divide the monthly payment by 4, and that is what I would claim for a deduction?

I am sorry to be so needy.

[val2525]

Cell phone is a tricky area, especially if it's on a personal plan. Different accountants/CPAs handle this differently. My boss rarely takes 100% of cell phone expense as a deduction UNLESS it's a business account (billng under business name). For clients with a family plan, we take a % of the cost for the phones for the business owners. It varies based on their business and what they estimate to be business use %.

[Deleted]

OK, I wont claim cell phone.

So, on Tax Act, I used the worksheet, entered in the total amounts that I paid for utilities (electric, water, gas) and internet. And Tax Act will figure out how much of that qualifies for the deduction, based on the square footage I entered for my office?

[val2525]

Yes. You can claim some cell phone use, that's a legit deduction if you use it for business. But if it's a personal plan, it might be hard to justify that 100% of the expense is business is all.

Do you have a whole room dedicted to your ebay office/storage?

If you do, you can also try calculating using the # of rooms. Sometimes that's a larger deduction, but it only works if you have a room (or rooms) dedicated to business (instead of say a desk in the corner). You count up # of rooms excluding bathroom/utility/closets. Example, I have 2 bedrooms, a kitchen, and a living/dining combo, making 4 rooms. I have one room fully dedicated to eBay, so that's 25% (1 of 4). Actually, I treat the living/dining combo as two rooms (to play it safe) which makes it 5 rooms for me, and take 1 of 5 rooms for ebay and 1 of 5 rooms for my other biz. I have client files in the dining room, which is offset from LR and my desk takes up most of the space, along with file cabinets (not used as a dining room at all), and when I have accounting folks over, we meet there. The second bedroom is 100% Ebay.

[val2525]

Have you come to the part where you record your insurance coverage for last year? THat part is fun (not).

[Deleted]

I have a whole room, and I measured it. It is about 200 sq feet.  Very small space.  I didn't take into account my neatly stacked bins in the living room.. that is getting too complicated.


And fortunately, I have a Health Place Marketplace exemption, so no fee for me this year. 

HOLY CRAP!  I think I am done!  I hope I did it right.  I know I would still be terribly confused if it weren't for you, Val.     My eternal thanks!

[val2525]

How many rooms total in your house?

[val2525]

And fortunately, I have a Health Place Marketplace exemption, so no fee for me this year.

I think you still have to report that on the return, though, don't you?

(I usualy do business returns at the office, so I won't be doing any of the 1040 overflow until after March 15th, thank goodness!)

[Deleted]

Yes, I had to report it, and also had to check the box that said the exemption was for the whole year.

The fee was going to be $285 or some noise like that. Just for me and DH! Glad it was waived.

[Deleted]

Feb 5, 2015 6:36:13 GMT val2525 said:

How many rooms total in your house?

I have 3 bedrooms, 2 baths.  The living and eating area are not separated by walls, is that one room?  And then kitchen and eating aren't separated either?  They flow together in an L-shape.  Then my office.

So at the most, 9 rooms.

[denise15601]

I just picked up my taxes on Tuesday. Weird-I grossed less but pay about the same (I did buy less to balance it out, I guess), with an additional $325 or so.

Since I am 65, I lost my earned income credit.

So I have to pay $660 this year...ugh.

No way could I figure out my taxes myself. Worth it to pay them $300.

[Deleted]

I will be owing once the kids are no long a deduction. They save my butt.

I am so mad for you, that you lost your EIC. That saved my butt, too.

[Deleted]

Dh gets a bonus at work each year and they always over hold on it so that saves me from owing, so far. Still have 3 kids left at home so that helps too. I don't do any home office deductions, always figured it was a trickier area than I wanted to get into. If it gets to the point I'm having to pay in, I might look into deducting the one room I use but until then I'll play it safe and just do the basic deductions like gas, paper, fees etc.

[denise15601]

I claim a 1/4 of my house but it could easily be 1/3, so I am safe there.

My total deduction for my house is about $800.

[Deleted]

We have 5 bedrooms (although one is used as a large pantry), a front room and a kitchen/dining room, so I guess 7 rooms and I use 1 of the bedrooms for Ebay. So I'd only be taking 1/7th I guess for a deduction.

If all goes well we will be moving a building in back next year or building one and that will be dedicated to ebay instead. Not sure how that would work since it wouldn't be part of the house but may be on the same electric meter, unless we have them set a new pole and meter and that can get pricey.