What Percentage of My Internet Bill Can I Deduct for Taxes?

Internet expenses can be tax-deductible if used for business, but only the portion related to work qualifies. The IRS does not allow deductions for personal use, so determining the right percentage is essential. To ensure accuracy and compliance, it’s important to calculate the deductible amount correctly and keep proper records.

Business and Personal Usage Breakdown

Determining how much of your internet bill qualifies for a tax deduction starts with understanding its usage. If the internet is necessary for work—such as running a business, telecommuting, or managing freelance projects—the portion dedicated to these activities may be deductible. The IRS requires that any claimed expense be both ordinary and necessary, meaning it must be common in your industry and directly related to generating income.

For those who work from home, internet use often overlaps between business and personal activities. Streaming entertainment, social media, and general browsing do not qualify, so it’s important to separate business-related usage. Employees who work remotely but do not own a business generally cannot deduct internet costs, as the Tax Cuts and Jobs Act of 2017 eliminated most unreimbursed employee expense deductions. However, self-employed individuals, independent contractors, and small business owners can claim a portion of their internet bill as a business expense.

If a dedicated business internet connection is installed separately from a personal one, the full cost of the business connection may be deductible. If a single connection is used for both work and personal purposes, an allocation method must be used to determine the deductible percentage. This can be based on time spent on business activities, data usage, or another reasonable method.

Calculating the Deductible Portion

The IRS does not provide a specific formula for determining the deductible portion of internet expenses, but the chosen method must be reasonable and justifiable in case of an audit. One common approach is calculating the percentage of total internet usage that is work-related. This can be done by tracking the number of hours spent on business activities compared to personal use. For example, if the internet is used for work 40 hours per week and personal activities for 20 hours, the deductible portion would be 67% (40 ÷ 60 total hours).

Another method is analyzing data consumption. Many internet service providers offer monthly usage reports. If business-related applications, such as video conferencing, cloud storage, and online research, account for 300 GB out of a total 500 GB used in a billing cycle, then 60% of the bill could be allocated as a deductible expense. This method is useful for those whose work involves high-bandwidth activities, such as content creation or software development.

For those claiming the home office deduction, another option is allocating costs based on the square footage of a home office. If a home office occupies 15% of a residence and internet access is essential for business tasks, a proportional deduction may be justified. However, this method should only be used if the internet primarily supports business operations rather than general household use.

Documentation for Your Records

Maintaining thorough records is necessary to substantiate any internet expense deduction claimed on a tax return. The IRS requires clear evidence that expenses are legitimate business costs. One of the most effective ways to document internet usage is by keeping copies of monthly billing statements. These should show the total cost, service provider details, and payment confirmation. If the internet package includes bundled services such as phone or cable, it is important to separate the cost of internet access from non-deductible portions.

Beyond billing statements, maintaining a log of business-related internet use can strengthen documentation. A simple spreadsheet tracking work hours spent online, specific tasks performed, and the nature of business activities conducted can serve as supporting evidence. For those using data consumption as an allocation method, screenshots of usage reports from the internet service provider can help substantiate the deduction. Digital tools that track online activity may also provide useful insights, particularly for freelancers or remote workers.

If internet expenses are reimbursed by a client or employer, maintaining records of these reimbursements is important. Deductions cannot be claimed on amounts that have been reimbursed. Retaining copies of reimbursement requests and payment confirmations ensures that only the portion of internet costs personally incurred for business purposes is deducted.

Filing the Deduction

When reporting internet expenses on a tax return, the correct form depends on the taxpayer’s filing status and business structure. Sole proprietors and single-member LLCs typically claim the deduction on Schedule C (Profit or Loss From Business) under “Utilities.” Partnerships and S corporations must report these expenses on Form 1065 or Form 1120-S, respectively, and allocate deductions to partners or shareholders via Schedule K-1. If the deduction is part of a broader home office claim, Form 8829 (Expenses for Business Use of Your Home) may also be required.

Properly categorizing the expense is just as important as claiming it. Internet costs should be classified as an ordinary and necessary business expense rather than a capital expenditure, as they do not provide a long-term asset but rather an ongoing service. Misclassification can lead to adjustments during an IRS audit, potentially triggering penalties or interest on underpaid taxes. If internet expenses exceed the IRS threshold for Section 179 expensing or the de minimis safe harbor election, alternative accounting treatment may be required.