Internet Service at Home

[Parent of holy terrors]

A business owner wants to deduct the cost of his high speed interent at home because the only reason he bought it was to "ftp" off the business data to his home as an off site and felt it would be more consistent to "wire" the data to his home pc as a backup routine rather than bring home tapes.

Would an auditor feel this is ordinary and necessary?

Would it be better to claim the additional cost over dial up?

Please share your thoughts.

Thanks.

[Bees Knees]

Offsite data backup systems is most definitely an ordinary and necessary business expense, especially after 9/11. It is my understanding that none of the businesses that were demolished in those terrorist attacks lost data because they all had offsite data backups that were done each night over the Internet. Without such a backup, the data would have been lost.

The only question here is what is the business percentage? Is the cost of high speed Internet for his home pc 100% business? Or is it 80%, 50%, or some other percentage?

As with any costs associated with listed property (such as autos and computers), you have to substantiate the business use with usage logs, such as mileage logs or time logs. Without such logs, you have some arguing to do with an auditor if he or she should get nit-picky over the rules. I would not, however, guess and say the increased cost of high speed over dial up. Business use is not determined by the extra cost of something. For example, you can’t say you needed an SUV instead of a compact car and deduct the difference. The deduction has to be based on usage, not extra cost.

[Snaggletooth]

PerCentage

None of the elaborate methods of measuring business percent usage are embraced by our clients. They all seem to look to us to become the referee.

I will normally take 80%, and if that is too high, leave that for the auditor. This, of course, assumes the computer is physically located in a business work area, and not in the kid's bedroom where he plays computer games. If the computer is in the home, I won't take more than 80% -- I've heard somewhere that this is the maximum an auditor won't challenge.

I remember my first PC back in 1986. Had I not needed it for accounting work, I wouldn't have bought it, so I deducted it in full. Things have changed, but I still estimate some 80% of my data section of hard drive is filled with tax and accounting info.

[Armando Beaujolais]

A business owner wants to deduct the cost of his high speed interent at home because the only reason he bought it was to "ftp" off the business data to his home as an off site and felt it would be more consistent to "wire" the data to his home pc as a backup routine rather than bring home tapes.

Would an auditor feel this is ordinary and necessary?

Would it be better to claim the additional cost over dial up?

Please share your thoughts.

Thanks.

The response of "I wouldn't have bought it except for business" is what clients tell you hoping you'll say "Oh, that means you get 100% writeoff." Of course that's not true.

I get that response every time a client gives me their cell phone expense. "I wouldn't have bought it except for business..." then "I only use it for business." Yeah yeah. I actually had a client once who was interrupted by their cell phone in the middle of that hoo haa and it was her mom wondering if they were still going out to lunch.

I make them give me a percentage, and give them the speech that it's listed property and if they don't have a log verifying business use the expense will get thrown out at an audit.

It's common that you're forced to rely on guesses with stuff like this, and that's fine. But my policy is that I will never make that guess for a client. Guesses out of thin air are made all the time for business mileage, computer use percentage, commuting miles, stock basis, etc., etc., etc. But it's the client's responsibility. They'll beg me to give them a number, but I won't do it. I might give them numbers I've seen in similar situations, but they have the responsibility.

Better not use a computer less than 100% in an office in the home situation. And you'd better have a second computer in the home for personal use.

[JG EA]

Home Office

I will normally take 80%, and if that is too high, leave that for the auditor. This, of course, assumes the computer is physically located in a business work area, and not in the kid's bedroom where he plays computer games. If the computer is in the home, I won't take more than 80% -- I've heard somewhere that this is the maximum an auditor won't challenge.

I'm sure you know this already, but an 80% business-use computer in a home office will disqualify the home office.

[Unregistered]

Why not just have the business pay the expense directly? If it is a reasonable business expense - it shouldn't be a problem. My wife's employer pays for all of our cable internet service so that she can access the office from home at night.

[Bees Knees]

Why not just have the business pay the expense directly? If it is a reasonable business expense - it shouldn't be a problem. My wife's employer pays for all of our cable internet service so that she can access the office from home at night.

Having the business pay the expense does nothing to change the business percentage of a deduction. If an S corp owner has the S corp pay his internet service, and the internet service is used 80% for business and 20% for personal, then 20% of the expense paid by the S corp would have to be counted as a distribution to the shareholder.

And if the IRS audited your return and found out your wife's employer was paying for some of your personal expenses, you would have unreported income to deal with, because an employer paying personal expenses for an employee is called a taxable fringe benefit....you know...like a company car, and things like these.

[Roberts]

What do you do with a sole proprietor who has a laptop at their office that they take home every night and play computer games on it?

[Armando Beaujolais]

What do you do with a sole proprietor who has a laptop at their office that they take home every night and play computer games on it?

You take the business use percentage the same as any other property.

I'm not saying you have to fall all over yourself trying to dig out immaterial personal use of stuff. But if "they take it home every night and play computer games on it," it's not exclusive business use.

[Bees Knees]

What do you do with a sole proprietor who has a laptop at their office that they take home every night and play computer games on it?

What do you do with a client that doesn't want to report under the table cash income...and is stupid enough to admitt it?

[jimmcg]

Make them an ex-client!