Where should I put Internet expenses for my Home Office?

Question

There are four options:

1. Other Common Business Expenses - Communication;
2. Other Common Business Expenses - Utilities; <– I believe it should never be used if you have home office.
3. Home Office Expenses - Common Expenses (like other utilities);
4. Home Office Expenses - Home Office Only Expenses (like repair expenses).

The only thing TurboTax tells about Internet in the "Other Common Business Expenses - Utilities" is the following:

Examples of communications expenses you can deduct if you do not have a business office(s) or properties are: ... Internet service used for business.

The question becomes more complicated in the following cases:

    a). Internet is used for private purposes as well and there's no use logs (that would be crazy!);

    b). Also it's bundle plan combined with TV cable and there's no way to calculate separate amount related to Internet service;

    c). Also it's bundle plan combined with primary phone line that isn't deductible for business purposes and there's no way to calculate separate amount related to Internet service.

My case is "b" but most home office owners are on "c". Where should I put Internet expenses for my Home Office?

P.S. When I'm trying to ask the same question on TurboTax AnswerXchange they immediately remove it and block paid account! Extremely strange behavior! As the fact that they don't tell where to put that expense.

Answer 1

On form 8829, line 20 you can list utilities paid for the home office. You have two choices:

1) You can list the entire amount under column (b) as an indirect expense. You will then get a deduction for the fraction of the amount based on what fraction of your home is an office. This makes sense if the service equally benefits your entire home.

2) You can compute the portion of the expense reasonably attributable to the business/office and list that amount under column (a). This entire amount will be deducted.

Which option you choose depends on how well you think you can allocate the expense between your office and the rest of your home. For example, I have had to do this with electricity, but I specifically measured the electricity used by my office. If you think you can defend allocating a larger portion to the office, use option 2.

If you would have paid the same amount even if you didn't have an office, it's hard to justify allocating more of the expense to the office than its portion of the home. If you opted for a more expensive service or otherwise incurred additional costs, it makes sense to allocate a higher fraction to the office and to calculate that yourself.