Tax Question - How to write off expenses that are mixed with personal use?

12 replies
Broadband usage for example.

I live with my girlfriend and we pay 42/month for broadband. It's mostly used by myself as I work from home. How do I extrapolate a figure from that? Obviously there's also gas, electricity, home office use etc.

I know the best advice would be to hire an accountant but that isn't option at the moment.

I'd appreciate any advice.

Edit: I'm from United Kingdom
#expenses #mixed #personal #question #tax #write
  • Profile picture of the author ChrisBa
    Maybe mention the country you are in and see if someone can help, I'm guessing the answer from most people on here would just be to speak with an accountant, but you might get lucky (but you would need to tell us the country)
    {{ DiscussionBoard.errors[10976456].message }}
    • Originally Posted by ChrisBa View Post

      Maybe mention the country you are in and see if someone can help, I'm guessing the answer from most people on here would just be to speak with an accountant, but you might get lucky (but you would need to tell us the country)
      Yeah sorry, I should've mentioned the country. I've edited it in the OP
      Signature

      {{ DiscussionBoard.errors[10976473].message }}
  • Profile picture of the author JohnnyNight
    On Intuit site..

    If your office space takes up 20% of the house, you can deduct 20% of your bills for utilities, homeowners insurance, homeowners association fees, security, and general repairs and maintenance. Mortgage interest and property taxes are deductible expenses if you qualify for home office deductions.
    {{ DiscussionBoard.errors[10976460].message }}
  • Profile picture of the author JohnMcCabe
    The ultimate answer for something like broadband usage is, like auto expenses, to keep a log. Then you can prove that a certain percentage of use went to business.

    For home office expenses, first review the requirements on the irs.gov website. If you meet the requirements, you can write off the portion of typical expenses proportional to the business use.

    For example, if your home is 1,000 square feet and your qualifying office is 100 square feet, you'd be able to write off 10% (100/1000) of your mortgage or rent, electricity, etc.

    There are some really good guides available for cheap on Amazon. Sandy Botkin had a good one, but you'd have to see if he kept it up to date.

    Edit: This info is for folks based in the USA. Maybe UK has some similar resources?
    {{ DiscussionBoard.errors[10976466].message }}
    • Profile picture of the author JohnnyNight
      Originally Posted by JohnMcCabe View Post

      The ultimate answer for something like broadband usage is, like auto expenses, to keep a log. Then you can prove that a certain percentage of use went to business.

      For home office expenses, first review the requirements on the irs.gov website. If you meet the requirements, you can write off the portion of typical expenses proportional to the business use.

      For example, if your home is 1,000 square feet and your qualifying office is 100 square feet, you'd be able to write off 10% (100/1000) of your mortgage or rent, electricity, etc.

      There are some really good guides available for cheap on Amazon. Sandy Botkin had a good one, but you'd have to see if he kept it up to date.

      Yeah... I would you would have a lot of better things to do with your life that than to spend time keeping track of broadband usage for a $48 a month bill..

      But that's just me..
      {{ DiscussionBoard.errors[10976478].message }}
      • Profile picture of the author DABK
        I know someone who got audited by the IRS for things like you're talking about... In the end, they let him be. But he spent 6 weeks getting ready, looking backwards, collecting info, and worrying like crazy... He's concluded he'd have been much better off tracking such silly things.

        I've concluded the same for me, and track such silly things.

        Originally Posted by JohnnyNight View Post

        Yeah... I would you would have a lot of better things to do with your life that than to spend time keeping track of broadband usage for a $48 a month bill..

        But that's just me..
        {{ DiscussionBoard.errors[10976759].message }}
        • Originally Posted by DABK View Post

          I know someone who got audited by the IRS for things like you're talking about... In the end, they let him be. But he spent 6 weeks getting ready, looking backwards, collecting info, and worrying like crazy... He's concluded he'd have been much better off tracking such silly things.

          I've concluded the same for me, and track such silly things.
          I'd like to track such silly things but the reason why I posted this thread is because I'm not sure how.

          How do you decipher how much gas and electricity you used for your business?? I'm guessing you just estimate? There are a total of 6 rooms in my house including my office. So do I just divide my monthly gas / electric bill by 6?
          Signature

          {{ DiscussionBoard.errors[10976782].message }}
  • Profile picture of the author JohnMcCabe
    Originally Posted by JohnnyNight View Post

    Yeah... I would you would have a lot of better things to do with your life that than to spend time keeping track of broadband usage for a $48 a month bill..

    But that's just me..
    You're right. But I did do it for one typical month, since that was how the services were billed. Multiply by 12, and you have a reasonable estimate. Same with mileage - logged a typical month (trips to check PO box, drop offs at UPS store, etc.) then only logged special trips (like to an event).

    Keep it within reason, in other words. Don't raise red flags and you can work with reasonable averages.
    {{ DiscussionBoard.errors[10976780].message }}
  • Profile picture of the author Kate Davies
    Hi

    HMRC are usually fine with a reasonable split as long as you are consistent and keep records.

    I used to be a corporate accountant who's now turned to internet marketing as my career, as it's much more fun, but obviously I do my own accounts.

    When I first went self employed I faced exactly the same issue as you (despite being an accountant) because I realised there were no accounting rules in the text books that could be applied to so many different scenarios of different people working from home in so many different circumstances. I did have the advantage however, of confidence that what I was doing was reasonable and explainable should HMRC ever question my calculations.

    As fate would have it I did get inspected by HMRC and when I explained the basis of my calculations to their representative he was perfectly happy.

    I initially kept records in a simple spreadsheet and categorised costs in to different types of expenditure groups. I use an accounts package now, but back then a spreadsheet worked just fine.

    Here's how I break down the major cost groups that are not 100% directly attributable to the business (i.e. part business, part personal).

    Premises - I use the spare room as an office and that room is one of six rooms in the house so I charge 15% of 'premises' costs to the business. That is perfectly reasonable. My premises costs are mortgage, council tax, gas, electricity and water. I add up all those costs for the year and charge 15% to the business.

    For Internet & Mobile Phone costs and for Vehicle Costs (petrol, mot, insurance, repairs, servicing, The AA etc) I initially put them all in to the expenses, in the accounts for the business, and then take off a personal use percentage. For 2012/3 it worked out as 17% personal use for mobile + internet and 40% for personal use of the car.

    That meant that in 2012/13 I charged 83% of my mobile and internet costs to the business.

    Over time the percentages have changed. I now charge around 65% of internet and mobile costs to the business and 35% as personal use, as the balance has changed over time and I do a lot more personal stuff online than I was doing 4-5 years ago.

    Can you see how that makes sense and is easy to back up and explain? You just need keep simple records, work out what seems like a fair split and apply it.

    In the UK, contrary to popular belief, HMRC are actually very reasonable and if you can show that you have considered your calculations on a fair basis, you won't go far wrong.

    Hope that helps. Feel free to ask if you need any more help.

    Kate
    Signature
    Local internet marketing in the UK
    Only the businesses who can be found online will succeed. Improve online visibility with www.vizzibiliti.co.uk
    {{ DiscussionBoard.errors[10976784].message }}
  • Profile picture of the author JohnMcCabe
    Originally Posted by GoodnightSweetRatRace View Post

    I'd like to track such silly things but the reason why I posted this thread is because I'm not sure how.

    How do you decipher how much gas and electricity you used for your business?? I'm guessing you just estimate? There are a total of 6 rooms in my house including my office. So do I just divide my monthly gas / electric bill by 6?
    That approach is reasonable.

    Being educated as an engineer, I wanted something that sounded more precise. So I used square footage rather than number of rooms, but the idea is the same.
    {{ DiscussionBoard.errors[10976801].message }}
  • Profile picture of the author Vedmak
    In USA and Canada you can claim portion. If its half personal, half business you would simply state that as 50% of your bill.

    As long as what you are claiming sounds reasonable they give you plenty of breathing room. In 25 years I only got contacted two times for clarification.
    {{ DiscussionBoard.errors[10977525].message }}
  • Profile picture of the author yukon
    Banned
    Ask a local tax person. Done.
    Signature
    Hi
    {{ DiscussionBoard.errors[10977536].message }}

Trending Topics