Yes – you can deduct part of your internet expenses when they are used for business.
According to a 2023 American University survey, 37% of small business owners and freelancers feel confused by tax rules, leading to missed deductions and potential IRS penalties.
But there are rules to follow so you only write off the legitimate portion and avoid trouble with the IRS.
In this comprehensive guide, you’ll learn:
- 💡 How to calculate exactly what percentage of your internet bill you can write off
- ⚖️ Key IRS rules (and loopholes) on home office, mixed-use expenses, and reimbursements
- 🏢 Differences by business type (sole proprietors, LLCs, S-Corps, freelancers) and work setup (home office vs. external office)
- 🚩 Mistakes to avoid that could trigger audits or disqualify your deduction
- 📄 Which forms and tax cases show you’re allowed to deduct internet, and how to document it
How Much of Your Internet Bill Can You Deduct for Business?
You can deduct the portion of your internet bill that is used for business purposes. In other words, if part of your monthly Wi-Fi or broadband usage is for work, that percentage of the cost is a legitimate business expense. The IRS considers internet service an ordinary and necessary expense for many businesses, similar to utilities like electricity. However, since most people use the internet for both work and personal activities, only the business-use portion is tax-deductible.
For example, if 60% of your internet usage is for work (emails, Zoom meetings, managing a website, etc.), then you can deduct 60% of your internet bill on your taxes. If you pay $100 a month for internet, about $60 per month (the work-related share) would be a business expense. The remaining 40% ($40) is personal use and not deductible. There’s no fixed cap on the percentage – it should reflect your actual business use.
Some freelancers who work online full-time might justify an 80% or even 90% business use, whereas someone who only uses the internet occasionally for side gigs might deduct 20% or less. The key is to be honest and reasonable: deduct what you truly use for work and exclude purely personal browsing or streaming.
Can you ever deduct 100% of your internet bill? Yes – but only if the service is used exclusively for business. This usually means you have a dedicated internet connection for your business that isn’t used for personal needs. For instance, a retail store, office, or studio with its own business internet line can deduct that bill in full.
Similarly, if you’re a solo entrepreneur who got a second internet line purely for your home office (and you keep personal devices off that network), that separate business internet cost is 100% write-off. Most home-based business owners, however, use one connection for everything, so they can’t claim the whole bill. They must allocate a percentage.
To determine how much of your internet is deductible, you can use a couple of methods:
- Time-based method: Estimate the portion of time you use the internet for work versus personal use. For example, if you’re actively using internet about 10 hours a day and roughly 5 of those are for your business, you might claim ~50% business use. You could track an average workweek to gauge this. Say you’re awake and using the internet 80 hours a week, and 40 of those hours are work-related – that’s 50%.
- Data usage method: Some internet service providers or routers show data usage per device or user. If you primarily use one computer for work and it accounts for, say, 70% of the total data usage on your network, you could use that figure as your business percentage.
- Flat estimation: In practice, many self-employed people choose a reasonable flat percentage (30%, 50%, etc.) based on their work habits. For instance, 50% is a common choice if you work from home full-time and also use internet for personal needs daily. Just be prepared to explain how you arrived at that percentage if asked.
Important: The IRS does not require a highly precise, minute-by-minute log for internet use. Unlike a vehicle mileage log or travel receipts, your internet expense is not subject to stringent “listed property” substantiation rules. Tax courts have acknowledged that you don’t need to track every second of business internet use – you simply need a reasonable basis for the percentage you claim.
That said, it’s wise to keep some evidence of your estimate: a simple log of hours spent on business activities for a week, an analysis of data usage, or any documentation that supports your calculation. This way, if you ever face an audit, you can show how you determined that (for example) 60% of your internet goes toward running your online business.
In summary, determine the portion of your internet that’s used for work, and deduct only that portion. By doing so, you’ll stay within the law and still get a nice tax break for the cost of staying connected for business.
Avoid These Mistakes When Claiming Your Internet
When writing off your internet for business, it’s easy to slip up. Here are some common mistakes (and misunderstandings) to avoid:
- ❌ Claiming personal use as business: Don’t try to write off your entire internet bill if you clearly use it for Netflix, social media, or general personal use part of the time. The IRS knows virtually everyone has personal use – deducting 100% without a very good reason is a red flag. Only claim the portion that’s truly work-related.
- ❌ Forgetting to document your percentage: If you deduct, say, 70% of your Wi-Fi costs, be ready to back that number up. A big mistake is not keeping any record of how you arrived at your business-use percentage. You don’t need to log every website, but do maintain a simple note on your calculation (hours worked vs. total hours online, data reports, etc.). In an audit, “I just guessed” won’t cut it.
- ❌ Double-dipping with the home office deduction: Be careful not to deduct the same expense twice. If you include your internet costs as part of a home office deduction (on Form 8829), don’t also list them separately on Schedule C. It’s one or the other. Similarly, if you use the IRS simplified home office method (a flat $5/sq ft), that simplified rate is meant to cover utilities like internet – you shouldn’t separately deduct internet on top of it.
- ❌ Deducting as an employee (without state allowance): If you’re a W-2 employee working from home, you generally cannot deduct your internet on your federal return under current law. This changed in 2018 (when unreimbursed employee expenses were suspended). Don’t mistakenly try to claim it on Schedule A – it won’t be allowed (unless you fall under a special category or are in a state that allows it). Instead, ask your employer about reimbursement.
- ❌ Not using an accountable plan (for S-Corps): S-Corp owners often pay for home internet personally. One blunder is not setting up an accountable plan and still trying to have the S-Corp deduct that expense. Without a plan, the IRS could reclassify those payments as income to you. The correct approach: have the company reimburse you for the business portion of home internet under a written accountable plan. That way the company gets the deduction and you don’t get extra taxable income.
- ❌ Ignoring bundles and extra services: If your internet is bundled with cable TV or phone service, don’t deduct the entire bundle cost unless the other services are also business-related. For example, if you pay $150 for a package (internet + cable), and the internet standalone would be $80, use $80 as the base for your business percentage calculation (unless the cable is also used for work, which is rare). Failing to separate these can lead to overstating your deduction.
- ❌ Thinking the account must be in the business’s name: Some people assume they can’t deduct a home internet plan because it’s under their personal name. That’s a myth – name on the bill doesn’t matter. If you’re the one paying it and using it for your business, you can claim the business portion. Don’t go through unnecessary trouble of getting a business account with your ISP (which might cost more) just for the deduction; it’s not required.
- ❌ Overlooking state tax nuances: As mentioned, a few states still let employees deduct unreimbursed work expenses (like home internet) on the state return. Conversely, those states might have their own rules or forms. One mistake is not checking your state tax rules – you could be leaving money on the table if your state (say, California or New York) allows a deduction that you can’t take federally. On the flip side, ensure you don’t deduct on the state if it’s not allowed. Know the rules for your location.
By steering clear of these pitfalls, you can confidently claim your internet deduction and minimize any risk of an audit or deduction denial. Remember, the goal is to save on taxes legally, not to push the envelope into dubious territory.
Real Examples: Deducting Internet in Different Work Scenarios
To make these concepts concrete, let’s look at three common scenarios and how internet deductions would work for each one. These examples will show the range from a home-based business to a coworking setup to a traditional office lease.
Home Office with Mixed-Use Internet
| Scenario: Home Office | How the Deduction Works |
|---|---|
| You run a small business from a home office. You have one internet service for your household, used by both your work and your family. Let’s say you determine about 60% of your internet use is for your business (during working hours), and 40% is personal (evenings, streaming, kids’ use). | Deduct the 60% that’s for business. On your Schedule C (for a sole proprietor) you’d claim 60% of your annual internet bills as a utility expense. For example, if your internet costs $100/month, you’d write off about $60 per month, which is $720 for the year. You should keep documentation on how you arrived at the 60% (e.g. hours of work internet use vs. non-work). If you’re also claiming a home office deduction using actual expenses, you might include the internet cost on Form 8829 instead, multiplying it by the home office percentage. But many home-based business owners opt to just list the business portion of internet directly on Schedule C (Line 25, Utilities) for simplicity and to ensure they can deduct it even in a low-profit year. |
Why it works: The internet service is a mixed-use expense, and you’re allocating it between business and personal. The tax rules allow this allocation. By keeping it to 60%, you reflect that you still have some personal use, keeping the deduction honest. If you didn’t have a dedicated home office (say you just occasionally work on the couch), you could still deduct the business portion of internet like this – you’re not required to have an exclusive office space to claim internet.
(In fact, a 2012 Tax Court case allowed a couple to deduct home internet costs even though they had no official home office, as long as the expense was ordinary, necessary, and the business use portion was proven.) The key is documenting that business use exists and is significant.
Coworking Space Member (Internet Included)
| Scenario: Coworking Space | How the Deduction Works |
|---|---|
| You work primarily from a coworking space that provides Wi-Fi and internet as part of your membership. For example, you pay $300 a month for a desk at a coworking hub, and that fee includes access to high-speed internet, conference rooms, and other amenities. You still maintain a basic home internet for personal use, but let’s say you do all your work at the coworking site using their internet. | Deduct the full cost of the coworking fee as a business expense. In this case, you aren’t paying separately for internet – it’s baked into your coworking rent/membership dues. Your $300/mo (or $3,600/year) coworking cost is 100% business use, so it’s fully deductible (likely categorized as “Rent or coworking fees”). Since your work internet is fully covered at the coworking space, you wouldn’t deduct your home internet (because you’re not using it for the business significantly in this scenario). If occasionally you answer a late email from home, that minor use might not be worth calculating. The main point: the expense you incur to get internet for work – in this case the coworking membership – is completely write-off eligible. |
Why it works: When you rent a workspace (coworking or office), those fees are directly business expenses. Here, the internet is included, so you deduct the whole package. This scenario also highlights that you cannot deduct personal home internet if it’s not used for the business. Only the cost that actually relates to work (the coworking membership) is deducted. If in the future you drop the coworking space and work from home more, you could then shift to deducting a portion of your home internet. Tax law is flexible to your situation year by year.
Dedicated Office with a Business Internet Line
| Scenario: Dedicated Office Space | How the Deduction Works |
|---|---|
| Your company rents a commercial office (or retail storefront) and you have a dedicated internet line installed there in the business’s name. For example, you pay an ISP $150 per month for business internet at the office. This connection is used only by you and your staff for work – all personal internet usage happens at home on a separate plan. | Deduct 100% of the office internet cost as a business expense. Because this internet service is exclusively for the business location and isn’t used for personal purposes, the entire $150/month (that’s $1,800/year) is a valid business write-off. On the company’s books and tax return, it would be listed under utilities or communications expenses. There’s no need to allocate any portion to personal use since none of it is personal. Just make sure the bill is paid by the business or billed to the business. If you also have a home internet for non-work use, that remains personal and not deducted (unless you have a side business from home, in which case that would be a separate calculation as in the home office scenario). |
Why it works: This is the cleanest scenario. A completely business-dedicated internet connection is a straightforward business expense – just like paying for an office phone line or electricity at the office. There’s no mixed-use, so no percentage split is needed. The IRS will view it no differently than any other office utility. If you’re structured as a company, it’s ideal to have the company directly pay for such expenses. In case an owner pays it personally, the company should reimburse them (so the company can still deduct it and the owner isn’t stuck without a deduction). But in general, with a dedicated office line, it’s fully on the business side of the ledger.
These scenarios show how much you can deduct in different setups. Whether you work from home or elsewhere, remember: deduct what is used for business, and leave out the rest. The more your situation leans toward a pure business use (like a separate line or paid workspace), the closer to 100% your deduction can be. If it’s heavily mixed with personal use (like a typical home), stick to a partial percentage that makes sense.
Comparing Business Types and Office Setups
The rules for deducting internet apply across all kinds of businesses, but how you take the deduction can vary based on your business structure (sole proprietor, LLC, S-Corp, etc.) and your work setup. Below is a side-by-side comparison of different scenarios, explaining how internet expenses are handled for each. This will help you find your situation and see the specific approach required:
| Business Structure & Setup | How Internet Deduction Works |
|---|---|
| Sole Proprietor (Home Office) Single-member LLC taxed as sole prop would be the same | Deduct the business-use portion of your home internet on Schedule C (Profit or Loss from Business). Typically, you list it under “Utilities” (Line 25) or as part of the home office calculation on Form 8829. Example: You use 50% for business, so you write off 50% of the cost. Personal portion is not deductible. You must have self-employment income to take this – the deduction can’t exceed your business’s net income (if using the home office form), but if you put it directly on Schedule C, it can contribute to a business loss which could offset other income. |
| Sole Proprietor (Dedicated Office) | If you rent a separate office or store and set up internet solely for that business location, you can deduct 100% of that internet bill on Schedule C. It’s a direct business utility expense. Any additional internet you pay at home would be personal (unless you also use home for business after hours, which could then be a smaller separate deduction). Since the office is your primary work location, you likely won’t file a home office form at all – you’ll just expense the office utilities outright. |
| Partnership or Multi-Member LLC (Home Office) | The partnership itself can reimburse partners for home office expenses (including internet) or pay directly, but often partners handle certain home expenses personally. If you’re a partner using a home workspace, you might claim an Unreimbursed Partnership Expense (UPE) on your personal return for your business portion of internet, if the partnership agreement allows it. Otherwise, try to have the partnership reimburse you for the internet use (then the partnership deducts it). Partnerships generally can’t deduct a partner’s personal home expenses unless structured as a reimbursement or UPE. So, communication with your partners is key to avoid losing the deduction. |
| Partnership or Multi-Member LLC (Dedicated Office) | The business (the partnership/LLC) pays for an office internet service and deducts the full cost on the partnership tax return (Form 1065). This is straightforward – it’s a business utility expense. Individual partners wouldn’t deduct anything on their personal returns because the expense is already accounted for by the partnership. If partners also work from home occasionally, those home internet portions would fall under the previous scenario (ideally handled via reimbursement or not deducted if minimal). |
| S-Corporation (Home Office) | For an S-Corp, the key is an accountable plan. As an owner-employee, you should have the S-Corp reimburse you for the business percentage of your home internet. You’d submit an expense report for, say, “Internet – 60% used for company work” and the company pays you that amount. The S-Corp then deducts that reimbursement as a business expense (utilities or office expense), and it’s not taxable income to you because it’s a reimbursement. Do not simply deduct home internet on your individual Schedule C if you’re operating as an S-Corp – that’s a mistake (you no longer have a Schedule C for the corp’s activities). And unreimbursed employee expenses (which is what an S-Corp owner’s home internet would be) aren’t deductible on Form 1040. So, the only clean way is through the corporation. Set up documentation for an accountable plan to keep everything IRS-compliant. |
| S-Corporation (Dedicated Office) | The S-Corp can pay the office’s internet bill directly (or under the company’s account) and deduct 100% of it as a business expense. There’s no personal use issue if it’s purely at the office. If the owner or employees sometimes work from home and use personal internet for that, the S-Corp should again use an accountable plan to cover those occasional home-work internet costs. But day-to-day, a dedicated office internet line paid by the company is fully deductible to the corporation. |
| C-Corporation (Home Office) | A C-Corp is similar to an S-Corp in this context. The company should either pay directly for a business internet line or reimburse the employee (which could be you, as an owner-employee) for the business portion of home internet. Through an accountable plan, the reimbursement isn’t counted as income and the C-Corp writes it off as an expense. One advantage C-Corps have: they can potentially set up fringe benefits (like paying for your entire internet and treating the personal portion as a minimal fringe benefit). But it’s safer to just reimburse the clear business percentage. Either way, don’t deduct it on your personal return – it belongs on the corporate books. |
| C-Corporation (Dedicated Office) | The corporation pays for internet at the corporate office and deducts it fully. It’s a normal business expense. If any personal use happens (e.g. an employee occasionally browsing non-work websites at the office), that’s generally too incidental to worry about or could be considered a minor fringe use. The expense is still 100% business-purpose, as the service exists to enable work. No allocation is needed in practice. |
| W-2 Employee (Home Office) | Unfortunately, as a regular employee you cannot deduct home internet on your federal return as an unreimbursed expense (thanks to the Tax Cuts and Jobs Act rules in effect 2018-2025). The workaround is to get your employer to cover it – some employers will pay a portion of your internet or phone if you’re required to work remotely. However, check your state: a few states (such as California, New York, Pennsylvania, Alabama, and others) still allow deductions for unreimbursed employee business expenses on the state income tax return. For instance, in California you may itemize those expenses on your state Schedule CA even though the IRS says no on Schedule A. So you might salvage a deduction there if you qualify. Always separate the federal and state treatment in your mind so you don’t claim it where you shouldn’t. |
| W-2 Employee (Office Provided) | If you work in your employer’s office and they provide the internet (or it’s just available at work), you have no expense to deduct personally. There’s no cost on you, and thus no deduction. Even if you occasionally take work home, unless you incur a significant unreimbursed cost, you generally won’t have anything to write off. In short, no out-of-pocket expense, no deduction. (And any minor use of your home internet for a late night email is not deductible for employees under current law.) |
How to use this table: Identify your business type on the left and see the corresponding method on the right. If you’re a freelancer or sole proprietor working from home, you’ll handle things on your personal tax return (Schedule C or Form 8829) and allocate between business and personal use. If you operate through an entity like an S-Corp or partnership, you’ll involve the business’s tax return or reimbursements to get the deduction. And if you’re a remote employee, know that federal law won’t give you a deduction (but your state might). Each situation has a slightly different mechanism, but the core principle remains: only the business-use share of internet is deductible, and it must be properly claimed in the right place.
Pros and Cons of Writing Off Your Internet
Is claiming an internet deduction worth it? In most cases, yes – but it comes with responsibilities. Here’s a quick look at the upsides and downsides of deducting your internet bill for business:
| Pros | Cons |
|---|---|
| Tax Savings: Lowers your taxable income, which means you pay less in taxes. You’re effectively getting some of your internet cost subsidized by tax savings. | Record-Keeping Required: You need to track and justify the business portion of use. This adds a bit of paperwork or effort (like keeping bills and a usage note). |
| Legitimate Expense: Recognizes a genuine cost of doing business. If the internet is critical for your work, you should benefit from the write-off just like any other business expense. | Audit Scrutiny: A very high percentage (or improper deduction) can draw IRS attention. If you claim an unrealistically large portion, you better have proof – otherwise you risk penalties for an overstated deduction. |
| Flexible Methods: You can deduct via Schedule C, home office form, or through a business entity – whatever fits your situation. This flexibility means most business owners can find a way to qualify. | Partial Deduction: You can’t deduct the personal-use portion. So you never get to write off the full bill unless you have a dedicated business line. In effect, you still pay out-of-pocket for some portion that’s personal. |
| Encourages Good Habits: Thinking about your internet use for business may encourage you to separate business and personal tech use more clearly (maybe even set up a second line or better schedule) to maximize deductions. | Complex for Entities: If you operate as an S-Corp or partnership, you have to run the expense through reimbursements or partnership accounting. It’s not as simple as a sole prop deducting it, which means a tad more admin work (accountable plans, resolutions, etc.). |
| Home Office Boost: For home-based folks, the internet deduction can significantly boost your home office tax break (since internet is often one of the larger utility costs). | Limited for Employees: If you’re a regular employee, this benefit is largely off the table federally. You might feel it’s unfair that you can’t deduct costs your job requires if your employer won’t reimburse them. |
Overall, the pros of deducting your internet – especially the tax savings and acknowledging a real business need – usually outweigh the cons, as long as you follow the rules. The cons are mainly about doing it correctly: keeping documentation and not stretching the truth on how much is business use. If you’re willing to maintain reasonable records and calculations, the deduction is a valuable way to reduce your tax bill. On the flip side, if your business use is minimal or you don’t want to bother with the paperwork, you might leave this deduction and essentially absorb the cost personally. It’s a choice every small business owner can make, but it’s generally wise to take advantage of it if you legitimately qualify.
IRS Rules, Forms, and Court Cases (The Evidence)
Curious what the official word is? Let’s dig into the tax law foundation for deducting internet expenses, and see how IRS forms and even tax court decisions come into play. This section provides the evidence and authority behind everything we’ve discussed:
Internal Revenue Code & IRS Guidance: Business expenses are governed by Section 162 of the Internal Revenue Code, which says you can deduct “ordinary and necessary” expenses paid or incurred in carrying on a trade or business. Your internet bill, if used for work, fits that definition – it’s ordinary (common for businesses to need internet) and necessary (you pretty much can’t operate in today’s world without connectivity).
Conversely, Section 262 of the Code disallows personal expenses. So the crux is: internet usage that’s business-related is allowed, personal use is not. The IRS has echoed this in publications (for example, in IRS Publication 535 on Business Expenses and Publication 587 on Business Use of Your Home) – they explicitly mention that expenses like utilities, including internet, can be deducted to the extent of business use.
Home office rule vs. internet: One important clarification – the “exclusive use” rule that applies to a home office (you can only deduct a home workspace if it’s used solely for business) does NOT apply to the internet service itself. Internet access is considered a utility/telecom expense, not a portion of your physical home. This means you can deduct your business internet percentage even if your home internet is used for personal things too (which it almost always is).
In the past, some confusion arose because telephone landlines had a special rule (the first phone line to your house was never deductible, only long-distance or a second line could be written off). Internet service has no such special limitation – it falls under general business expense rules. So you don’t need a completely separate “business internet account” so long as you divide the usage.
Key IRS forms: How you actually claim the deduction depends on your situation:
- If you’re self-employed (sole proprietor or single-member LLC not taxed as a corp), you’ll use Schedule C (Form 1040). On Schedule C, internet expenses typically go under the “Utilities” line (Line 25) or “Other expenses” with a description if you prefer. You would enter just the business portion in dollars.
- If you’re incorporating your internet costs into a Home Office Deduction, you’d use Form 8829 (Expenses for Business Use of Your Home). On Form 8829, you can include utilities (which would cover internet) in Part II, and apply your home office business-use percentage to them.
- The result from Form 8829 carries over to your Schedule C. Note: if you take the simplified home office (which is a flat amount per square foot), you wouldn’t use Form 8829 at all, and you also wouldn’t separately deduct internet – the IRS simplified method implicitly covers it in the $5/sq ft rate.
- If you’re an S-Corp or C-Corp owner, the deduction occurs on the corporate tax return (Form 1120S for S-Corp, Form 1120 for C-Corp) as a business expense. There’s no special form for internet – it just gets included in the utility or office expense category on the company return.
- However, the accountable plan should be documented in your corporate records. That’s an internal document (not filed with the IRS) where the company sets a policy for reimbursing home office or other expenses. When you submit an expense report for your internet and get reimbursed, the company records that expense and you keep the receipts and calculation on file.
- For partnerships, internet expenses paid by the partnership would be on Form 1065 (the partnership return). If it’s reimbursing a partner, it might show up as an expense and possibly as a reduction in the partner’s capital if not repaid – but that’s getting into the weeds. The takeaway is, a partnership needs to either pay it or allow it in an agreement for the partner to claim. There isn’t a separate IRS form for UPE; instead, the partner would adjust their basis or use line 28 of Schedule E with the notation “UPE” in some cases. This is a niche area so professional advice is recommended for partnerships.
Tax Court cases: Several court decisions have reinforced the right way to deduct internet and have slapped the IRS’s hand when they were too strict:
- In Fessey v. Commissioner (T.C. Memo 2010-191), the Tax Court affirmed that a taxpayer “may deduct the cost of home internet service” as a business expense under Section 162, as long as it’s ordinary and necessary. The court also made clear that any non-business use is nondeductible personal expense (common sense). This case was a green light that home internet, like any utility, can be partly deducted.
- In Bogue v. Commissioner (T.C. Memo 2011-164), the court addressed substantiation. The IRS had tried to argue that internet expenses should fall under stricter record-keeping (like those required for travel or entertainment expenses), but the Tax Court disagreed. It noted that internet is considered a utility, and strict substantiation rules don’t apply to utilities. In plainer terms, you don’t need a log of every time you used the internet for work – you just need to reasonably prove the overall percentage. The court said you don’t have to “connect each moment of internet use to a business purpose” (thank goodness!). This case gives taxpayers some breathing room on how to substantiate internet use.
- A 2012 Tax Court Memo (T.C. Memo 2012-272) involved a scenario where the IRS denied a couple’s internet deduction because they didn’t claim a formal home office. The IRS took the position that since the couple had another office location, their home internet was a personal utility (not covered by a home office deduction). The Tax Court, however, ruled in favor of the taxpayers, allowing the internet write-off for the business portion. The court emphasized that the taxpayers only needed to prove what portion of the internet was used for business – they weren’t required to have a home office to deduct a communication expense. This was a pivotal clarification: even without an exclusive home office, if you can show you incur internet costs for your business (emails after hours, research from home, etc.), you can deduct that part. It underscored that the home office rules (which are under Section 280A) don’t automatically disqualify other business expenses just because you have another work location.
- Numerous cases over the years echo the theme that allocation is key. As long as you allocate between business and personal and have some rational basis, courts tend to allow the business portion. Conversely, when taxpayers have tried to push the envelope – like deducting nearly all of an expense that clearly had personal elements without justification – the IRS and courts will disallow the excess.
IRS stance: The IRS generally concurs with these principles now. If you were to call the IRS or dig into their Tax Topic guidance, they’ll tell you: Yes, deduct your work-related internet, but only the percentage used for business. They might also remind you that if you’re an employee, it’s not deductible federally currently. The existence of Schedule C’s utility line and Form 8829’s inclusion of utilities shows that IRS expects people to be taking these deductions appropriately.
Documentation best practices: The evidence doesn’t stop at forms and cases – your own documentation is part of the proof if ever needed. Save those monthly internet bills (paper or PDF). Jot down your business use calculation and keep it with your tax records. If you have an accountable plan reimbursement, keep a copy of the request you submitted and proof of the company payment. If your state requires a special form for unreimbursed expenses (for example, PA Schedule UE in Pennsylvania or similar worksheets in California), be sure to fill those out. All these pieces form the evidence that you followed the rules.
In summary, the law is on your side to deduct internet for business use – with the condition that you proportionally split personal use. The IRS provides the mechanisms (forms) to do it, and the Tax Court has upheld taxpayer claims when done properly. By understanding this foundation, you can be confident that “Yes, it’s legal and acceptable to deduct my internet – I just have to do it the right way.”
Key Tax Terms Explained
To navigate internet deductions, you should understand a few tax terms and concepts that frequently come up. Here’s a brief glossary in plain language:
- Ordinary and Necessary: This is the gold standard test for any business expense. “Ordinary” means common and accepted in your industry, and “necessary” means helpful and appropriate for your business. Internet service qualifies as ordinary and necessary for most businesses today – it would be hard to operate without it. If an expense meets this test, Section 162 generally allows it as a deduction.
- Mixed-Use Expense: An expense that is used for both business and personal purposes. Home internet is a classic mixed-use expense – part business, part personal. Tax rules require you to allocate mixed expenses between deductible (business) and non-deductible (personal) use. Other examples are your cell phone, or your car if you use it for both work and personal trips. Only the business portion of a mixed-use expense is tax-deductible.
- Exclusive Use (Home Office): This term refers to the requirement for the home office deduction that your workspace be exclusively used for business. If you spare a corner of your living room as your office, that area should not double as the kids’ playroom or your TV nook if you want to claim it. However, exclusive use does NOT apply to services like internet or phone – those can be split. So, your home office must be exclusive to deduct home-related costs, but your internet service can be non-exclusive (shared use) as long as you divide the costs. It’s an important distinction: you can have no exclusive home office yet still deduct some internet, as confirmed by the courts.
- Accountable Plan: A tool for businesses (especially S-Corps and C-Corps) to reimburse employees for business expenses in a way that doesn’t count as income. Under an accountable plan, an employee (or owner-employee) submits an expense report with details and receipts, and the company reimburses the exact amount of business expense. Because the employee has “accounted” for it, the reimbursement isn’t taxed and the company gets a deduction. If you’re an S-Corp owner, you need an accountable plan to legitimately get a home internet deduction – it’s how you transfer that expense from your personal side to the company’s books without payroll tax or other issues.
- Unreimbursed Employee Expenses: Costs that an employee incurs for their job that the employer doesn’t pay back. Pre-2018, employees could deduct these (if they exceeded 2% of income and you itemized), including things like a home office, professional dues, or home internet used for work. The Tax Cuts and Jobs Act put a halt to this deduction at the federal level (through 2025). So, for now, these expenses generally can’t be claimed on a federal return. However, as noted, some states still allow them. If you see references to Form 2106 (Employee Business Expenses) or talk of unreimbursed expenses, know that it’s limited to certain categories (like military reservists or performing artists) federally, or it’s a state-specific thing. In the context of internet, if you’re not reimbursed by your employer, it’s usually just a personal cost now (federally) unless you live in a state that says otherwise.
- Schedule C: This is an attachment to your Form 1040 tax return where a sole proprietor or single-member LLC reports business income and deductions. If you’re self-employed, Schedule C is your main form for everything from revenue to expenses. Internet expenses, as a utility, would be listed here (remember to only put the business-use portion, not the whole bill). Schedule C expenses directly reduce your taxable income from the business and also reduce self-employment tax in most cases.
- Form 8829: This IRS form is used to calculate the Home Office Deduction (actual expense method). You list your total home expenses (mortgage interest, rent, utilities, repairs, property taxes, etc.) and then apply the percentage of your home that is used exclusively for business. Internet is included typically under “utilities” on this form. The form will compute how much of each expense is deductible for the home office. One quirk: if your business has a loss or very low profit, Form 8829 might limit the home office portion and carry it forward to next year (whereas if you put an expense on Schedule C directly, it could contribute to a loss and still be taken – a nuance we touched on earlier). Form 8829 is only for self-employed folks; if you’re a W-2 employee, you can’t use it under current rules.
Understanding these terms can help you better grasp the do’s and don’ts of deducting your internet and other expenses. They frequently pop up in IRS instructions, tax software, and advice articles. Now you’ll know that “ordinary and necessary” is just tax speak for “legit business expense,” or that an “accountable plan” is not a complicated scheme but a simple reimbursement policy. Tax language can be daunting, but with a little decoding, it becomes useful knowledge that empowers you to manage your business finances smarter.
Related Concepts and Tips
The internet deduction intersects with several other tax topics. To fully optimize your home office or business deductions, consider these related concepts and tips:
Home Office Deduction: Your internet write-off often goes hand-in-hand with the home office deduction if you work from home. The home office deduction lets you deduct a portion of your home expenses (rent/mortgage interest, utilities, homeowners insurance, etc.) corresponding to a dedicated work space. If you qualify for a home office (exclusive and regular business use of a space), you can include internet costs as part of that deduction (via Form 8829) as we discussed.
However, even if you don’t qualify for a home office, you can still deduct your business internet portion separately. Many people confuse these – you might think “I’m not eligible for a home office, so I guess I can’t deduct internet.” That’s incorrect. Internet is a stand-alone expense. So, take the home office deduction if you’re eligible (it’s a great tax saver), but if not, at least take the internet expense on its own. And if you do claim both, avoid double counting the same internet costs in both places.
Cell Phone and Mobile Data: Internet isn’t the only communications expense you can write off. Your cell phone bill or any mobile data plan used for business is similarly deductible for the business-use percentage. The approach is nearly identical: determine what portion of your phone use is for work (calls to clients, work emails, using the phone as a hotspot for your laptop, etc.) and deduct that percentage of your phone bill. Many self-employed people bundle this under the same mental category as internet – these are all part of staying connected for business. Just like with internet, you wouldn’t deduct a personal share (for instance, your hours scrolling Instagram that aren’t work-related).
Also, note the IRS’s old rule on telephone lines: the first landline to your home is not deductible, but a second line 100% for business is. Most have moved to cell phones, making that less relevant, but the principle remains: if you need a separate phone or data line for your biz, it can be fully written off. If it’s shared, you prorate it. So when doing your taxes, remember to handle phone charges the same way as internet – they’re often grouped together in advice and on forms (some tax software will literally ask about “phone & internet expenses”).
Equipment and Installation Costs: Got a special modem or router for your business needs? Did you pay an installation fee to get a better connection for your home office? Those costs can generally be deducted too. Equipment like a router, if not supplied by the ISP, could be treated as a business expense (either expensed or depreciated depending on cost – but most routers are inexpensive enough to expense in one year). If you upgraded to a higher tier internet plan solely because of your business usage, the incremental cost is definitely deductible.
The general tip here is: any expense to get or improve your business connectivity can be considered. Don’t overlook things like a signal booster for your home office, a mesh Wi-Fi system so you can work from your workshop in the garage, etc., if they’re primarily for business use. These might fall under office expenses or equipment, but it’s related to the same concept of staying connected for work.
TurboTax and Tax Software Guidance: If you use tax software like TurboTax, H&R Block, etc., or you track expenses in QuickBooks, they will guide you through these deductions. For instance, TurboTax’s interview will ask if you had any home office expenses or any business expenses for utilities such as internet and phone. It will prompt you to enter the total cost and the percentage used for business. TurboTax (and its competitors) then do the math and place the correct numbers on Schedule C or Form 8829. QuickBooks, as an accounting software, lets you categorize expenses throughout the year. If you pay your internet bill from your business account, you’d categorize it as an expense (say “Internet Service” under Utilities). At year-end, you or your accountant would adjust the books to reflect only the business portion (maybe via an accounting entry or simply by informing your tax preparer of the percentage).
Pro tip: In QuickBooks or whatever system you use, you might choose to only record the business percentage of the bill as an expense each month to begin with. Some people do that to avoid forgetting the personal disallowance. Others record 100% and then back out the personal part at year-end. Either method is fine, just remain consistent and clear in your records. The bottom line is, modern tax tools are built with these common deductions in mind – they’ll usually ask the right questions. Don’t skip those sections thinking “oh, it’s just my home internet, not a big deal” – answer them and get your deduction!
State Tax Considerations: We touched on state differences for employees, but let’s broaden that. Most states piggyback off the federal definition of taxable income for business owners. So if you deducted an expense on your federal Schedule C or corporate return, it’s typically reflected in your state return too. However, a few states have quirks. For example, some states might not allow certain deductions or have different depreciation rules (not directly relevant to internet, but relevant to overall tax). Specific to home office and unreimbursed expenses: as mentioned, states like New York, California, Pennsylvania, Alabama, Arkansas, Hawaii, Minnesota, and Maryland have provisions that still allow itemized deductions for unreimbursed employee business expenses or have their own worksheets.
If you happen to run a side business and also are a W-2 employee, you might have a scenario where the business part you handle on Schedule C is fine, but maybe you also have some unreimbursed expenses for the day job that you can claim on the state return. It’s beyond our scope to dive deep into each state, but always review your state’s instructions. They often list any deductions allowed that differ from federal. The key related concept: the tax benefit of your internet expense could exist on two levels – federal and state. Self-employed folks get it on both. W-2 folks currently get it only on some states. Knowing this can alert you to not miss a state deduction if you’re eligible.
Examples of Other Deductible Utilities: Internet is just one utility. If you qualify for a home office, remember you can also deduct a portion of electricity, heating, water, and trash – basically the utilities that keep your home office running – via Form 8829. Those follow the percentage of your home that’s your office. Internet (and phone) are slightly different because you might choose to treat them as direct business expenses in proportion to usage (especially if that yields a better deduction in a low-income year, as discussed). But conceptually, they’re all part of the cost of operating a home workspace. Also, if you rent an office outside, those utility bills for the office (electric, internet, water) are fully deductible. So when planning your taxes, don’t stop at internet – consider all the overhead costs associated with your work space that might be deductible too.
Audit Odds and Ends: One related point often asked: “Will deducting my home office or internet trigger an audit?” There’s a historical myth that claiming a home office is an audit red flag. The IRS has clarified that home office deductions are common and not an automatic red flag – as long as they’re legitimate. The same goes for internet. There’s nothing inherently suspicious about a reasonable internet expense for a business. What could raise a flag is if someone with very low business income is claiming a very high amount of expenses (internet or otherwise), or if the percentage seems implausible (like 95% business use but their business doesn’t obviously require that level). Even then, it’s often combination of factors that triggers audits, not one line item. The takeaway related concept here is reasonable deductions generally fly under the radar. And if you’re ever audited, having solid records will turn a stressful situation into a straightforward one. So, file confidently and just keep your paperwork.
By understanding these related areas – from home office rules to software help to state quirks – you’ll be better equipped to maximize your overall tax savings, not just on internet but across the board. Business owners often find that one deduction leads to another. Ask questions like: “If I can deduct my internet, what about my laptop, my printer, my cell phone?” (Spoiler: those are likely deductible too if used for business!). It’s all part of painting a complete picture of your business expenses. The internet deduction is one piece of that puzzle, and now you have a full 360° view to place that piece correctly and optimize your taxes.
FAQ: Internet Expense Deductions for Business
Q: Can I deduct my internet bill if I’m a W-2 employee working from home?
A: No. Not on your federal taxes under current law. Only self-employed individuals can. However, some states let employees deduct unreimbursed work expenses on state returns, so check your state rules.
Q: Do I need a separate internet account in my business’s name to write it off?
A: No. The IRS doesn’t require the account to be in the business name. You can deduct the business portion of a personally-held internet plan. The crucial part is how it’s used, not whose name is on the bill.
Q: Is there an IRS limit or safe harbor percentage for internet use?
A: No. There’s no fixed IRS cap like “you can only deduct up to 50%.” Deduct whatever percentage you genuinely use for work. It just needs to be reasonable and supported by your usage pattern or records.
Q: Will claiming an internet deduction increase my audit risk?
A: No. Not by itself. An internet expense is common and expected. As long as your claimed percentage is plausible (and you have backup for it), it’s unlikely to draw scrutiny. The IRS focuses on larger issues or clear discrepancies.
Q: Where do I actually report the internet deduction on my taxes?
A: If you’re self-employed, include it on Schedule C (under utilities or other expenses). If it’s part of a home office, it goes on Form 8829 and then flows to Schedule C. For an S-Corp or LLC, the expense is recorded on the business return or via reimbursement, not on your personal 1040.
Q: If I use the simplified home office deduction, can I still deduct my internet separately?
A: No. The simplified home office deduction (the $5 per square foot method) is meant to cover all home office expenses, including utilities like internet. You shouldn’t claim an additional internet expense on top of the simplified amount.
Q: I only use my home internet lightly for my side business – maybe 10%. Is it even worth deducting?
A: Yes. Even a 10% business use is worth deducting if it’s a consistent part of your work. It might not save a ton, but every bit helps. Just make sure the effort of tracking is proportionate – in this case, estimating 10% is straightforward.
Q: My employer gives me a stipend (or reimbursement) for my internet – can I also deduct the rest I pay?
A: Yes. If your employer reimburses only part, you can potentially deduct the unreimbursed business portion on your state taxes (federal won’t allow it for W-2). You cannot deduct the portion that’s reimbursed (since you didn’t effectively pay for it – you got money back).
Q: Can my business pay for my entire home internet and just call it a business expense?
A: Yes, but… if your company (S-Corp/C-Corp) pays the whole bill, you should treat the personal-use portion as a taxable fringe benefit or reimburse only the business portion under an accountable plan. You can’t simply have the business write off 100% if half is personal – the IRS expects an allocation or a fringe benefit treatment for the personal share.
Q: What if I use my phone’s hotspot for internet on the go – is that deductible?
A: Yes. Using your phone’s data plan for work is essentially a cell phone expense. You would deduct a portion of your cell phone bill for business use (which covers hotspot data usage). It follows the same rule: if 30% of your phone/data use is for business (including hotspot for your laptop), you deduct 30% of your phone bill.