As a small business owner, are the tax procedures somewhat complicated for you? That’s why the government has introduced a simplified home office deduction.
Recent times have seen a surge in the number of small business owners operating out of their home offices. And similar to any other business, it is typical for them to have a range of business expenses. These include the costs of rent, utilities, mortgage, and so on.
Thus, if these small home-based business owners were to pay all of these expenses out of their pocket along with taxes, their business venture would end up losing more money than earned. Supposedly, you bought a top notch home office desk, that should be your business expense, and not come out from your pocket. Luckily, such costs are tax deductible under the simplified home office deduction, meaning they can be subtracted from the gross income.
But many often wonder, does the simplified home office deduction include internet connection as well? That’s what we have sought to address in this article, along with some of the other aspects of the simplified deduction.
Now starting an art print business or an internet business from home has become easier with simplified home office deduction that cuts internet costs. Check out our article on why it’s important to have a work space, to find out more on home office related questions.
Without further delay, let’s get into it!
Tax Deductions For Home Office And Small Businesses
If you consider yourself to be a novice when it comes to tax and financial policies, then you need to know what tax deductions are. In simple terms, tax deductions are legal claims that you can make to the Internal Revenue Service (IRS) to reduce your income tax liability.
This claim to reduce your taxable income is made owing to the different expenses of owning a business or a home office. Therefore, it helps lower your tax burden so that you have more money to invest in your business.
From a financial standpoint, tax deductions are indeed helpful, but the process of applying is not that simple. That is why many small business owners don’t bother applying for tax deductions for their business expenses. If you would like to know more on other claims, then check out this article on claiming home office if you work from home.
However, skipping it will ultimately be counter-productive for their businesses, especially in the long run. As the additional expenses for running the business keep piling up, their revenues will keep on falling. And subsequently, the tax that they will have to pay the government will keep rising simultaneously. Thus, at the end of the tax year, they will be left with measly returns on their business investments.
The Simplified Home Office Deduction Explained
For many small business owners, the very idea of applying for a tax deduction can be nightmare-inducing due to how complicated they are. Even for those who are well-versed with taxation policies and procedures, the method for claiming tax deductions can be difficult to follow at times.
This is even more of a problem now, as the number of people who have started their own small businesses has increased substantially. That is why the IRS has come up with more streamlined policies for tax deductions, which constitutes the simplified home office deductions.
As the name suggests, the simplified method for home office deductions has been implemented, keeping in mind the business owners who have a home office. In essence, it is a simple method that can be easily followed to apply for tax deductions on several home office expenses.
It is way more convenient than the standard option of applying for tax deductions. But, it is only available for those who are self-employed or have a home office. You won’t be eligible for tax deductions under this option if you are employed at an organization.
On that note, the tax breaks for the simplified method are relatively lower compared to the standard deductions. This is a major trade-off for the simplified method for being so convenient. However, you have a choice between either of these options. If you want full deductions from your home office expenses, you can always opt for the standard method.
How Can Your Home Office Qualify For Tax Deductions?
If you are self-employed or operating from a home office, there are certain conditions to be eligible for tax deductions in the simplified option. First, your home office space needs to be used exclusively for business purposes. The office space itself can be in a room or other fixed location.
Regardless of where it is in your home, the space needs to be dedicated to business use alone and nothing else. So, if you use your dedicated home office space for recreational or family purposes, you would not be eligible for tax deductions.
Apart from that, if you use the simplified method, you can have an office space of up to 300 square feet which is tax deductible. For convenience, you can deduct 5 dollars for every square foot of your office space, up to a maximum of 1,500 dollars. That is the upper limit of tax deductions in the simplified method.
But if you want a larger deduction, you can go with the standard deduction method, which can be beneficial.. You can use it to cover all expenses incurred when working from your home office.
For instance, if your home office takes up 5% of your house, then all the costs in that space will be fully deductible. The deductible expenses will include 5% of your property taxes, mortgage interest, or any other depreciation. But you will need to keep a record of all of these expenses yourself, which can be a headache.
Is The Cost Of The Internet Included In The Simplified Home Office Deduction?
Now keeping all of the above discussion in mind, we arrive back to our original question – are the internet costs included in the simplified home office deductions? Well, it is difficult to provide a simple answer to that question. The internet is an essential component in any home office today. And while the simplified regulations do allow for tax deductions on essential business expenses, such as the internet, there are certain caveats.
First off, to be eligible for deductions, the usage of the internet needs to be focused on your business. If you use the internet connection for everyday browsing activities, it won’t be eligible for a tax deduction.
In context, if you have a single internet connection at home, filing for tax deductions is possible, but it’s a bit complicated. You need to make sure to keep a record of how much of the internet is used for business purposes; only those expenses will be considered as tax deductibles.
Also, note that the simplified method of home office deduction does not explicitly cover internet costs. However, it allows you to claim tax deductions on your internet bill if you follow a few extra steps.
When filling up your tax return form, you can claim a return on your internet costs as normal business expenses under Schedule C. This schedule uses the 1040 form instead of the 8829 form that is used for the standard method of tax deductions. Make sure you fill it up and list the internet costs as a business expense to claim a deduction on it.
Does The Simplified Home Office Deduction Include Internet FAQs ?
Do You Need To Get A Separate Internet Connection For Your Business Use?
The simple answer to this question is you don’t need to. While you can get a separate connection to make it more convenient to claim deductions, it is not necessary. If you have a single internet connection at home, you can use that for your business.
However, make sure to keep track of your usage so that you can determine how much is exactly used for the business. You can also keep the receipts of the internet bill, which will help you in this case.
Will You Need To Prove Your Business Internet Use To The IRS For It To Be Tax Deductible?
Yes, you will need to provide definitive proof to the IRS when it needs to be audited for tax return purposes. Fraudulent claims regarding internet usage are very common. That is why this is an additional step put in place to ensure your claim is authentic. Logs of your internet usage from the ISP and receipts of internet bills are enough to prove your internet usage in such cases.
What Other Costs Are Eligible For Tax Deductions Under The Simplified Method?
Similar to the internet costs, any other itemized deductions will be listed in the Schedule C (Form 1040) of your tax return documents. These include electricity and telephone bills, furniture, and office equipment.
Can You Switch Between The Simplified And Standard Methods Of Claiming Tax Deductions?
Yes, you can switch between either of the two options based on your preference. However, you cannot make a switch in the middle of a financial year. So, you’ll have to wait until the beginning of the next financial year to make the switch.
Does The Simplified Home Office Deduction Include Internet Final Words
That is all the information we can provide regarding the inclusion of internet in simplified home office deduction. You can follow our article to easily file for tax deductions on your home office internet bills.
While it may not sound as straightforward, it is definitely a lot easier than the standard methods of claiming tax deductions. You will need to be a lot more thorough with calculations and record keeping in the standard method. The slightest mistake may make you ineligible for claiming returns.
And that brings us to the end of this brief article. We hope that with the information we have provided, filing for tax deductions on your home office internet will be easier.
Now, it is time for us to sign off. Until next time, stay safe, everyone!