Utilities are trivially deductible when the meter belongs to a business location, and genuinely fiddly when a service straddles your business and your life — which, for home-based businesses, describes the internet bill, the phone, and everything else. The organizing principle is business-use percentage: deduct the share you can reasonably defend.

Business premises: deduct it all

If you rent or own a dedicated business space — office, shop, studio, warehouse — every utility serving it is fully deductible: electricity, gas, water, sewer, trash, internet, security monitoring, and phone service. These bills are in the business's name, paid from the business account, categorized once, done. If your lease bundles utilities into rent (a "gross lease"), there's nothing to split; it's simply rent.

Home-based businesses: route through the home office deduction

Home electricity, heat, and water for a home-based business are not directly deductible as utilities. They flow through the home office deduction instead: if you use the actual-expense method, you deduct the home-office percentage of those bills; if you use the simplified method ($5 per square foot), utilities are already baked into the flat rate and you deduct nothing extra.

The practical bookkeeping consequence: pay home utility bills personally. Recording the full electric bill in your business books and then also claiming a home office deduction is a classic double-count.

Internet is a partial exception. It isn't tied to the office square footage the way heat is — the IRS and courts treat it as a utility deductible by actual business-use percentage, separate from the home office calculation. If you can show that, say, 70% of household internet use is business (working hours, backup traffic, video calls), you can deduct 70% of the bill even alongside the simplified home office method. Estimate honestly, write down your reasoning once, and reuse it consistently.

Cell phones: the rules relaxed, the honesty requirement didn't

Cell phones stopped being "listed property" in 2010, which killed the call-log requirement. Today:

  • A phone or line used exclusively for business is fully deductible — device, plan, and accessories.
  • A mixed-use personal phone is deductible by business-use percentage. A reasonable estimate is acceptable; a written basis for it ("roughly 60% — client calls, email, and hotspot during work hours") is much better than a bare number.
  • The first landline into your home is never deductible, even with a home office — that's an explicit statutory rule. A second line used for business is deductible in full.

If your phone is heavily business, the cleanest solution is a dedicated business line or plan paid by the business — 100% deductible, zero estimation, and your accountant never has to ask about it again. Family plans deserve care: deduct only your line's share plus the business percentage, not the whole family's bill.

Choosing defensible percentages

There's no official table for business-use percentages; the standard is reasonableness plus consistency. Ways people ground their estimates:

  1. Time-based: hours of business use versus total waking use of the service.
  2. Data-based: router or carrier usage reports, where business and personal patterns are distinguishable.
  3. Line-based: on multi-line accounts, assign whole lines to business or personal, then split only the shared base fee.

Whatever method you pick, document it once, apply it all year, and revisit annually. Percentages that jump around (60% one year, 95% the next, with no change in the business) invite questions.

Bookkeeping mechanics

For a split bill paid from the business account, record only the business share as utilities and the remainder as a personal draw — or simpler, pay it personally and record just the business portion. Note the percentage on the transaction ("Internet — 70% business share of $89.99"). Recurring monthly amounts make this painless: set the split once and repeat it. The goal is books where the utilities account contains only what you'd comfortably defend, with the reasoning attached.