If I work from home for my employer (W-2 issued) is internet (web based billing service), water and electric bills considered Job Related Expenses?

[Carl]

Note entirely. But under deductions and credits tab in the job related expenses section, work it through to see if you qualify to claim a home office for your W-2 employment. If you do, then you can deduct a percentage of your utilities for your employment use. That percentage will be based on what percentage of your house qualifies for the home office deduction, if you qualify for that at all. If you don't qualify for the home office deduction, then you can't claim any of your other utility expenses either.

[Opus 17 · Accepted solution]

If you are a W-2 employee, you must meet three tests to take the home office deduction. You must work regularly from home (have no other main place of work); you must work exclusively from your home office, meaning you set aside a part of your home for the office and don't also use it for personal use; and you must work at home for the convenience (or requirement) of your employer, not just your own convenience.

Then, your home office deduction is a percentage of all expenses that are attributed to the whole house, on a square foot basis including gas and electric, insurance, repairs, mortgage interest, property taxes, and depreciation (wear and tear). 

However, flat rate services like home telephone and internet may not be deductible at all.  There are two arguments: One argument is that they are never deductible because they are flat rate services and your work use does not actually increase your cost, so your cost is not attributable to work and is not deductible. The other school of thought is that you can deduct the percentage of work use, but only if you have detailed records that can prove the amount of work use -- details of call minutes and internet megabytes that you can assign to business or work purposes.  So they are not deductible for most practical purposes.

Your home office expenses are transferred to form 2016 with any other unreimbursed work expenses, and then they are itemized deductions subject to the 2% rule, so your actual deduction will be reduced based on your other tax situations.

Note that when you sell the house, you must pay back (recapture) any deduction you took or could have taken for depreciation as a capital gains, even if the sale otherwise qualifies for the capital gains exclusion.  You may want to consider the simplified home office deduction method which does not involve you in depreciation recapture. 

https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-dedu...

[rah6050]

Opus yes I definately qualify a this room is only used as an office and is not used for any other purpose.  When you say for the convenience of my employer allbof is have moved to our home and the office space was sold so I believe I meet that requirement. Phone and cable make sense in your response and thank you for that.  Just a couple more questions below. PS I used the method of taking the total square footage and dividing the room for the total percentage.

1. If is use the simplified home use deduction do I still enter the electric water homeowner dues insurance etc??  If so do I enter the figure for the whole year (I.e add all electric bills for entire year the divide that by 12 or just enter the full amount and let turbo tax do the computing based on the percentage it calculated for the office

[Opus 17]

Read the IRS page on the simplified deduction.  You don't enter any household expenses, you take a straight $5 per square foot (maximum of 300 square feet).  Your property taxes and mortgage interest are fully deductible on schedule A instead of being split between schedule A (personal) and form 2016 (the business percentage).  You don't deduct any business percentage of insurance, utilities or other expenses, just the flat $5 per square foot.  Whether one is better than the other will need some thought or testing.