Are Internet Access (ISP) Expenses Deductible?
January 12, 2001
When you pay your monthly Internet Service Provider (ISP) fees, do you ever wonder if they might be deductible? And, if so, what kind of a deduction?
Well, assuming that you don't use your Internet access exclusively for business purposes (where the fees would clearly be a business expense), your ISP fees could still very possibly be deductible as an investment expense.
Investment expenses, by definition, are directly connected with the production of investment income. Remember that investment expenses are another form of Miscellaneous Itemized Deductions, are reported on Schedule A, and are subject to the 2% of AGI limitation. One long-standing type of investment expense has been fees paid to purchase "investment publications" such as The Wall Street Journal, Barron's, Money, etc.
I must assume, since you're stopping by the Fool website, that you use at least some of your surfing time here to research investments that will create investment income in the form of stock dividends and gains.
I mean, why are you here? You're here to understand more about stocks and other investments (and even taxes!), right? The Fool provides you with that knowledge, so there is no reason that the Fool website shouldn't be classified as something akin to an "investment publication." Our publication is just "online" as opposed to a medium where you'll get ink on your fingers when you turn the page.
In fact, you could argue that you can learn substantially more in the Fool's area than from many of the so-called investment publications. You can obtain general investment information, specific industry information, information on specific stocks and investments, not to mention other broad investing tips and techniques. And the beat goes on.
There is no specific provision in the tax code that bars a deduction for an electronic "investment publication." But, there could be a bit of a challenge: How much of your Internet activities are for personal use? Remember that you can't deduct non-investment-related online activities, like browsing the "Looking-for-Love" personals. You can't deduct for the time used making personal airline reservations, playing online games, or reading the current issue of Scuba Diver magazine. You see the problem? Only the investment portion of your ISP bill is an investment expense.
What to do? Well, you could log every hour of your time on the Web, identifying "investment" use versus "personal" use. Then you could compute the percentage of investment use and deduct the appropriate investment expense amount.
You might sigh and mumble, "That's just too much trouble." I would tend to agree. With ISP fees around $19.95 per month, a deduction of about $240 for those fees might not be unreasonable if you can show the IRS that your primary purpose for going online is for investment research purposes. It's quite likely that you can defend your deduction, if you can show the IRS that your primary purpose is investment-related and that your other personal activities are minimal.
Certainly, if you want to comply with the letter of the law, then a log would likely be required. But, if you can persuade the IRS to look at the "big picture," and that your primary Web activity is investment related, the deduction could be yours. So, give this some thought the next time you're preparing your taxes (or are accumulating your records to give to your tax professional). It just might save you a few tax bucks.
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