UTILITIES

Utilities

Whether you work from your home office, a dedicated space, your car, or even just own a rental property, your business utility expenses including electricity, gas, water, telephone and internet will likely be deductible. Depending on what type of business you operate, your utilities will be deductible on your Schedule C (business), Schedule E (rental) or Form 8829 (home office).

AIRBNB HOST (RENTER)

Tasha rented the guest bedroom in her personal residence for 22 nights last year. Tasha estimates that the guest bedroom / portion of her house related to rental activities makes up 20% of her residence. Last year she spent $5,500 utilities. Tasha's Schedule E utility expenses would be equal to approximately $66.30 ($5,500 x 20% x (22/365)).

PROFESSIONAL SERVICES

Emily is a sole proprietor lawyer who rents a small office for her business. She was required to pay $600 of deposits for electric and cable when she moved into her space. During the year she spent an additional $4,000 on telephone, internet and electric for her office space. Emily will not be able to deduct the $600 of deposits as a business expense (she should instead classify the deposits as assets on her balance sheet), however, she can deduct the $4,000 of utility operating costs on line 25 of her Schedule C.

AIRBNB HOST

Daisy owns a second home which she rented through Airbnb for 300 days last year. Daisy and her family did not use the home for any personal purposes all year. Since her personal use was not more that the greater of 15 days or 10% of the total days rented to others, her second home would be considered a rental property and she could deduct 100% of her the utility expenses associated with this property (to the extent not paid by long-term tenants and allowed based on passive activity rules).

DESIGNER

Dwight is a graphic designer who operates his business out of the guesthouse of his primary residence. The guest house (1,500 sqft) meets IRS requirements to be considered a home office. Throughout the year Dwight used Hurdlr to keep track of his home utility expenses, which totaled $8,000, and he can attribute 20% these costs to his guest house. When Dwight prepares his tax return he could deduct $1,600 ($8,000 x 20%) of home office utility expenses on Form 8829, then on line 30 of his Schedule C. Note that if he instead used the simplified method to deduct his home office expenses utility costs would be included in the $5 per square foot standard rate.

UBER DRIVER / RIDESHARE

Karim is a full time Lyft driver who pays $99 per month for cell phone service. Karim uses this phone solely for business purposes. When Karim prepares his tax return at the end of the year he could deduct all $1,188 ($99 x 12 months) of his telephone expenses on like 25 of his Schedule C.


INFORMATION ON DEDUCTING THE COST OF SUBSCRIPTIONS

  • If you rent a workspace space or take the home office deduction you can deduct the portion of your utilities directly related to your business or rental activities. Note however that any utilities included in your rent should not be deducted a second time as a utility expense. Further, if you are a landlord and your tenant is responsible for paying utilities, you are not allowed to deduct the utilities paid by your tenant on your tax return.
  • If you pay a deposit to open a utility account it is not tax deductible, rather you should record the deposit as an asset on your balance sheet.
  • If you qualify to take the home office deduction, keep track of your home utility expenses so you can deduct the portion of those expenses related to your office space on line 20 of Form 8829. If you are a landlord or Airbnb host the portion of utilities related to the space you rent will be deductible on line 17 of your Schedule E. If you have a dedicated office 100% of your utility expenses (to extent not included in your rent) can be deducted on line 25 of your Schedule C.
  • If you have a rental property or a home office with a landline, the base rate for your first phone line is not deductible, however, any additional telephone costs related to your business or rental activities could be deductible.
  • The utility deduction for Uber Driver / Rideshare drivers will likely be limited to telephone and internet. Gas and other vehicle expenses should be deducted as part of automobile expenses using either the standard mileage rate or actual method.

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