Electricity as home office deduction or direct expense

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mlg74
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Joined: Sat Mar 31, 2018 1:56 pm

Electricity as home office deduction or direct expense

Post by mlg74 » Mon Apr 02, 2018 7:47 am

I have a sole prop home business. Currently, I am deducting electricity as a percentage of the home office deduction. However, part of my business requires high energy-using hardware leading to a high electricity bill. I only use 25% of my home so I can only deduct this much for electricity; however 75% of my electricity is from my business. Is there a way to better reflect this in my business expenses. Can I forego deducting the electricity on my home deduction but rather as a business expense?

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: Electricity as home office deduction or direct expense

Post by stan1 » Mon Apr 02, 2018 8:00 am

In general utilities are pro-rated based on the percentage of the square footage in the house used for the business. How do you know 75% of your electricity is used by the business and 25% is used for living in the house? Is that an estimate or do you have a second meter installed? If you had a second meter installed I think you'd have a defendable position.

mlg74
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Joined: Sat Mar 31, 2018 1:56 pm

Re: Electricity as home office deduction or direct expense

Post by mlg74 » Mon Apr 02, 2018 8:03 am

stan1 wrote:
Mon Apr 02, 2018 8:00 am
In general utilities are pro-rated based on the percentage of the square footage in the house used for the business. How do you know 75% of your electricity is used by the business and 25% is used for living in the house? Is that an estimate or do you have a second meter installed? If you had a second meter installed I think you'd have a defendable position.
Thanks for the response. I understand your position. I don't have a second meter installed. However, the hardware runs 24/7 and I know the power usage of each hardware unit. In addition, I have Kill-a-watt meters that tell me how much usage at the wall. It is not as exact as a second meter.

phisher4
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Joined: Tue Oct 18, 2016 7:05 pm

Re: Electricity as home office deduction or direct expense

Post by phisher4 » Mon Apr 02, 2018 8:08 am

I'm assuming you're a Bitcoin miner?

If so, how are you turning a profit with residential electricity prices? Your tax deduction may be a moot point once you run the numbers overall.

mlg74
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Joined: Sat Mar 31, 2018 1:56 pm

Re: Electricity as home office deduction or direct expense

Post by mlg74 » Mon Apr 02, 2018 8:15 am

phisher4 wrote:
Mon Apr 02, 2018 8:08 am
I'm assuming you're a Bitcoin miner?

If so, how are you turning a profit with residential electricity prices? Your tax deduction may be a moot point once you run the numbers overall.
Yes I am in the mining game; however this is just a part of my business. Very profitable over the past year due to the price fluctuations. I pay 6 cents/kw, so electricity is not too bad.

FreemanB
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Re: Electricity as home office deduction or direct expense

Post by FreemanB » Mon Apr 02, 2018 8:24 am

As phisher4 indicated, have you looked to see how much of a difference this will actually make? If the numbers work out in your favor, I would have a second meter installed for it. As long as the electrical bill is combined, trying to use numbers outside of the home office percentage will likely be more trouble than it is worth. Separating the billing from your home electricity changes it to a business expense, removing any need for estimates and guesswork required for the home office deduction. Otherwise, you are likely to spend more time and money trying to prove your case than any potential gains would be worth, assuming you are even successful in claiming the higher amount at all.

mlg74
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Joined: Sat Mar 31, 2018 1:56 pm

Re: Electricity as home office deduction or direct expense

Post by mlg74 » Mon Apr 02, 2018 8:41 am

FreemanB wrote:
Mon Apr 02, 2018 8:24 am
As phisher4 indicated, have you looked to see how much of a difference this will actually make? If the numbers work out in your favor, I would have a second meter installed for it. As long as the electrical bill is combined, trying to use numbers outside of the home office percentage will likely be more trouble than it is worth. Separating the billing from your home electricity changes it to a business expense, removing any need for estimates and guesswork required for the home office deduction. Otherwise, you are likely to spend more time and money trying to prove your case than any potential gains would be worth, assuming you are even successful in claiming the higher amount at all.
Thank you and phisher4. It sounds like it would be more hassle than helpful. Will leave as-is!

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HueyLD
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Re: Electricity as home office deduction or direct expense

Post by HueyLD » Mon Apr 02, 2018 8:49 am

mlg74 wrote:
Mon Apr 02, 2018 7:47 am
I have a sole prop home business. Currently, I am deducting electricity as a percentage of the home office deduction. However, part of my business requires high energy-using hardware leading to a high electricity bill. I only use 25% of my home so I can only deduct this much for electricity; however 75% of my electricity is from my business. Is there a way to better reflect this in my business expenses. Can I forego deducting the electricity on my home deduction but rather as a business expense?
The IRS has guidelines for your situation. See form 8829 instructions.
Exception. If the business percentage of an indirect expense is different from the percentage on line 7, enter only the business part of the expense on the appropriate line in column (a), and leave that line in column (b) blank. For example, your electric bill is $800 for lighting, cooking, laundry, and television. If you reasonably estimate $300 of your electric bill is for lighting and you use 10% of your home for business, enter $30 on line 20 in column (a). Do not make an entry on line 20 in column (b) for any part of your electric bill.
Keep in mind that many things use electricity as stated in the form instructions. So, if you are convinced that your home business uses 75% of the electricity, you need to go thru the exercise and support your claim.

If you can document the 75%, you should use it. As long as the deduction is legit, you should not be afraid of claiming what’s rightfully yours.

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