If you work from home, you may be able to deduct the costs of keeping the lights and air conditioner on all day depending on whether you’re an employee or independent contractor.
Can employees deduct extra utility costs when working from home?
When you work from home, your electric bills will go up due to using more lights and running your air conditioner when you’d normally be away at work. You may also use more power due to things like your computer or cooking lunch at home. You’ll probably also increase your water usage.
The bad news is that employees can’t deduct work-at-home expenses. Employees can’t deduct any expenses their employers don’t reimburse.
The good news is that you’re saving money on your commute and maybe on eating out as well. Even if you don’t get a deduction, you could be spending less overall.
Can independent contractors deduct extra utility costs when working from home?
Independent contractors can deduct extra utility and water costs as part of the home office deduction. The general rule is that you can claim a home office when you have space in your home you exclusively use for work and you don’t have an office somewhere else.
The deduction is usually based on the size of your office compared to your house. So if you use a 100 square foot room as your office in a 1,000 square foot house, 100/1,000 = 10%. You can deduct 10% of your electric and water bills as part of the home office deduction.
Now, you might say that’s unfair because you’re in an area where electricity costs more during the day or you have to run your air conditioner more during the day versus at night. It is kind of unfair, but those are the rules.
The alternative would be if you have a separate building as your office, you could get a separate electric meter for it. That probably wouldn’t be worth it.
What about your internet bill?
Your internet bill usually counts as part of your general home expenses. If your office takes up 10% of your home, you can deduct 10% of your internet bill.
If you really only use your internet for business, you can deduct 100%. The IRS might ask if you really don’t use the internet for personal reasons or if you have other internet like a data plan on your phone or tablet.
Some people still pay based on data usage, especially in rural areas. In that situation, instead of using the square footage method, you can calculate your business versus personal data usage. For example, if you use 60% of your data for business, deduct 60% of your costs.