1099-NEC for new WFH business

[Loucapo]

hello,

my wife started working as an independent consultant for a company on 10/30/2023. i'm trying to file our taxes but am wondering how to answer a home expenses question like utilities. do i just enter the total we paid for the utilities for the whole house? would that include electric, gas, internet and cell phone?

thanks!

lou

[Bsch4477]

First you have to decide if she qualifies for having a home office which is a space used regularly and exclusively for her business. If you watch TV in that space, for example, it doesn’t qualify. You can use either a standard method or actual expense method to deduct a home office. You would add the home expenses included utilities used in business and multiply that by the square footage of the office divided by the square footage of the home. For 2023 you would prorate that amount for 2 months since it would have been used only for that time. If you itemize and own your home the amount of expense for mortgage interest and property tax not included in the home office calculation can be itemized on Sch A. If all of this is daunting you might seek a professional tax preparer to educate you for your first return. 

[MayaD]

You would enter the total expenses for the entire home and TurboTax will prorate that amount based on the percentage of the home that was used as home office. For example if the percentage is 10% and total utility bill is $100, TurboTax will calculate $10 for Home office utility expense. 

If you have a separate utility charges for your office(not very common) you can enter the amount next to home office only utility. 

For expenses related to your home office only, you can take %100 of these expenses. 

Utilities include:

- Gas and electric
- Water
- Sewer and septic system services
- Trash removal
- Heating oil

For communications expenses , such as phone lines, cell phones, fax lines, etc. we'll ask you for that information in the General Expenses 

For more information, check: Where do I enter the home office deduction for my business?

[Loucapo]

does a cell phone need to be used only for business in order to qualify?

[MayaD]

No. If it is for personal and business use, you can claim the business use as a tax deduction. If 30 percent of your time on the phone is spent on business, you could legitimately deduct 30 percent of your phone bill. 

However, if phone is used only for business, you can deduct the full amount as business expense. 

[Loucapo]

Sorry, one more question, do i enter the total for the whole year for the expenses and it will also auto prorate for the time she actually worked? or do i only add up for the time she was working (basically nov-dec)?

thanks again!

[DawnC]

No, TurboTax will not prorate the common expenses - you should only enter the business-related portion of the expenses.   The only expense TurboTax will prorate is the Home Office expense, and only if you are using actual expenses instead of taking the $5 per square foot/simplified home office deduction.  

Home Office Expense Options