Tax Deductions for Utility Bills

by Russell Huebsch, Demand Media

You can cool your house and run your appliances with a little assistance from Uncle Sam's dollar. This is almost always only the privilege of someone who owns a small business. However, claiming utility bills often draws the attention of the IRS when it chooses who to audit. If you deduct utility bills on your taxes, prepare to back up your claim with verifiable evidence.

If you have a brick-and-mortar business, you can always deduct expenses, such as utility bills. If you have a home office, you can also deduct a portion of your maintenance costs. The deduction for utility bills or any other recurring expense depends on the ratio of the size of the home office to your home. For instance, if your office takes up 5 percent of your home's square footage, you can deduct 5 percent of your utility bills.

You can deduct utility bills for a rental property, such as a timeshare or an apartment complex. If you have a dwelling you use for personal and business needs, you can only deduct utilities based on the amount you use the property for business.

Review IRS guidelines before deducting utility bills for a home office. The office must be your principal place of business, or a place where you regularly deal with customers and clients. In general, you cannot use the home office for personal use, such as a playroom for your kids. However, exceptions exist for certain industries. For example, owners of home daycare businesses can deduct a home office based on the portion of hours they use the room for business.

The IRS has a parallel tax system called the alternative minimum tax (AMT). The home-office deduction can trigger the AMT and raise your tax obligation, so you should review the potential implications of deducting your home office and utility bills, or have a tax professional help you plan your expenses for the year.

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