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Tax Court Recently Corrects IRS for Denying Home Internet Expenses


In a daily release of Tax Court opinions from the Court's website, the Watson CPA Group learns the Court affirms a taxpayer's home internet deduction. The Court also politely reminds the IRS that taxpayers have been allowed this deduction since 2009.

Colorado Springs, Colorado (PRWEB) October 25, 2012

In a proceeding brought to the Tax Court under Docket 4993-10 filed September 24, 2012, the Court allows a taxpayer to deduct home internet expenses since it is related to the taxpayer's academic research. In the past the Court has considered internet expenses to be a utility such as a telephone or electricity. This subsequently allowed the IRS to contend that a taxpayer would need a telephone regardless, and therefore the deduction as a business expense was routinely denied.

Taxpayers have relief for deducting utilities (except water) under the home office deduction. However, the home office deduction will not help taxpayers who work from home occasionally and have another office location. The IRS states that if a taxpayer performs substantial managerial activities at a location outside of their home, the home office deduction does not qualify. Subsequently utilities are not deductible.

According to court documents the IRS originally denied the home internet expense deduction because it was a utility, and the taxpayer was not claiming a home office deduction. To deduct a business expense a taxpayer must prove the amount and the business purpose. Since identifying and detailing the business purpose of each moment a taxpayer used his or her home internet is akin to nailing Jello to a wall, the IRS said No. The IRS was half-right.

The IRS was wrong since the Tax Court in 2009 stated that utility expenses including home internet service does not require a taxpayer to connect each moment of internet use to a business purpose. Further, this Court reminds the IRS that the taxpayer only needs to prove a percentage of use associated with a business purpose. If a taxpayer claims a deduction for a business meal, he or she would need to prove the specific business connection for that single purchase. Not internet expenses.

Back to the recent court ruling, the taxpayer used the internet for academic research and collaboration with other colleagues. The taxpayer only needs to be able to show the portion associated with his academic work to deduct the expense. This in itself might be a challenge- keep a logbook of hours spent for work is a simple suggestion. Unlike a business meal where names and places are a must, a logbook for internet tracking purposes only needs to demonstrate an overall business purpose. The difference is subtle.

If only the Tax Court could definitively address cell phones.

The Watson CPA Group is a progressive tax consultation and preparation firm embracing internet technology to provide worldwide tax service from offices in Colorado Springs, Colorado USA. A secure online Client Portal allows remote taxpayers to exchange financial information, tax documents and tax returns saving valuable time and resources.

Since 1997, The Watson CPA Group prepares individual and corporate tax returns for a flat fee, and specializes in LLCs, small business taxes, pilot and flight attendant tax deductions, rental property owners and expat tax clients.

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