So I start working from home tomorrow. My parents and I set up this one room as my office. I will be paying them rent.
Since you do not own the property where the home office is, you can not claim a home office expense on your taxes. That's because you're required to depreciate a home office, and you can not depreciate that which you do not directly own.
However, whatever rent you pay for that home office is a valid business deduction as a rental expense. There is a spot on the SCH C specifically and explicitly for rents paid (line 20 on the SCH C)
Can I deduct the whole amount off my tax?
If the entire amount of rent you pay is for that office space only, then yes.
How much should I pay them for rent.
That's between you and your parents. But understand just the fact that the rental agreement is between blood related relatives, that alone will at least raise eyebrows at the IRS. Your parents are expected to report the rental income from you on SCH E as a part of their personal joint tax return. Additionally, if your parents do not rent to you for "at least" the fair market rental value, that will limit their deductible rental expenses to the rental income and no carry over losses will be allowed.
How much can I deduct off the electricity and internet?
If the utilities are not in your name, then you can't claim or deduct a penny. Assuming your parents will charge you rent at the fair market rental value, they can add to that an additional (preferably fixed) amount for utilities and you just include that in the rent you pay and claim on line 20 of the SCH C. But if the utilities are not in your name you can't claim a single penny on line 25 of the SCH C.
