Based on my experience as a small business owner who's dealt with this exact question, I can confirm that you CAN deduct internet expenses separately from the simplified home office deduction, but you need to be smart about it. The key distinction is that the simplified method ($5/sq ft) is meant to replace the home-related overhead expenses like utilities that power the physical space. Internet service, however, is more of a business tool - especially when you're using it primarily for business activities like client calls, cloud software, and research. I've been doing this for 2 years now with no issues. Here's my approach: - I track my business vs personal internet usage monthly (roughly 65% business in my case) - I keep detailed logs of business activities that require internet - I treat it as a separate line item on Schedule C under "Other Business Expenses" The tax court case you mentioned is spot-on - it established that internet can be treated as a distinct business expense. Just make sure your business percentage is reasonable and well-documented. With your 60% business use and $85/month bill, you'd be looking at about $612 annually in deductions, which is definitely worth the effort to track properly. Pro tip: Set up a simple spreadsheet to log your business internet activities monthly. Makes tax time much easier and gives you solid documentation if questioned.

This thread has been incredibly helpful! I'm a freelance consultant who's been wrestling with this exact question for months. Reading through everyone's experiences, especially the real-world examples from Nia and Max, has given me the confidence to move forward with deducting my internet separately. I've been overly conservative and probably left money on the table by not taking this deduction. My internet usage is probably 70% business (constant video calls, large file transfers for client deliverables, and cloud-based project management), so I'm definitely going to start tracking this properly. One thing I'd add for other newcomers reading this: the consensus seems to be that documentation is everything. It's not enough to just estimate your business percentage - you need to be able to show WHY that percentage makes sense for your specific business activities. Starting next month, I'm going to implement Max's tracking approach with a simple monthly log of business internet activities. Better late than never! Thanks to everyone who shared their experiences - this is exactly why I love this community. Real people sharing real solutions to common tax headaches.

This is really encouraging to read! I'm in almost the exact same situation - my mom has been watching my two kids while my spouse and I work, and I have the full $5,000 in my Dependent Care FSA that I originally planned to use for daycare before everything changed. One question I haven't seen addressed yet: does it matter that my mom lives with us? She moved in earlier this year to help with the kids, but I'm wondering if the fact that she's residing in our home affects the legitimacy of paying her for childcare services through the FSA. I know she still qualifies as an eligible provider since she's not our dependent, but I want to make sure the living arrangement doesn't complicate things. Also, for those who have done this - how did you handle documentation for the care provided? Did you need to specify exact hours each day, or was a general "weekday childcare during work hours" sufficient for your FSA administrators? Thanks for all the detailed responses - this community has been incredibly helpful in figuring out how to navigate this properly!

Your plan sounds perfectly legitimate! I've actually done this exact same thing with my father-in-law who watches our kids during the week. The IRS rules are clear that as long as the care provider isn't your spouse, the child's other parent, or your dependent under 19, they qualify for FSA reimbursement. A few practical tips from my experience: **Set up a simple payment schedule** - I pay my father-in-law bi-weekly and submit FSA claims monthly. This creates a good paper trail and makes the tax impact more manageable for him throughout the year. **Prepare for the tax conversation** - The $5,000 will be taxable income for your mom, and she'll likely owe self-employment tax (15.3%) plus regular income tax. We calculated this upfront so there were no surprises come tax season. **Keep it professional** - Even though it's family, create a basic written agreement outlining the care schedule, payment terms, and her responsibilities. This helps demonstrate it's a legitimate childcare arrangement if your FSA administrator has questions. **Submit documentation properly** - You'll need her SSN, full name, and address for the FSA reimbursement forms. Most administrators don't require detailed daily logs - a general "weekday childcare during work hours" with date ranges is typically sufficient. This is honestly a win-win situation - you get to use your FSA funds as intended, your mom gets compensated for her time, and your kids get quality care from someone who loves them. Just make sure you both understand the tax implications upfront!

I've been following this thread and wanted to add one more consideration that could be really important for your situation. Since your dad is the annuitant on both contracts and you mentioned he has substantial medical bills, you should also ask the insurance company about any "nursing home" or "long-term care" provisions in your annuities. Many annuity contracts written 8+ years ago included provisions that allow penalty-free access to funds if the annuitant requires long-term care or is confined to a nursing home for a certain period (usually 90+ days). Even if your dad's current medical situation doesn't involve long-term care, these provisions sometimes extend to other qualifying medical expenses or disabilities. The key advantage is that these provisions often waive the 10% early withdrawal penalty entirely, while still allowing the annuitant to access the funds. You'd still owe ordinary income tax on the earnings, but eliminating that 10% penalty could save you several thousand dollars on the amounts you need to withdraw. Also, I'd suggest asking about the specific withdrawal order from your contracts. Some annuities use FIFO (first in, first out) which means your initial contributions come out first before any taxable earnings. Others use a pro-rata method. Understanding this could help you calculate exactly how much of any withdrawal would be taxable vs. just return of principal. Given all the great suggestions in this thread, it sounds like you have a solid plan to explore all options with your insurance company before making any decisions. The fact that your dad is both annuitant and beneficiary really does create some unique possibilities that standard ownership transfer scenarios don't address.

This has been such a comprehensive discussion with really practical advice! As someone who works with annuities regularly, I wanted to add one final consideration that could be crucial for your dad's situation. Since you mentioned these are 8-year-old contracts with significant growth, make sure to ask your insurance company about any "free withdrawal" provisions. Many annuities allow you to withdraw up to 10% of the contract value annually without surrender charges, and sometimes these free withdrawals have more favorable tax treatment or can be structured to minimize the taxable portion. If your dad needs, say, $25,000 total and your combined annuities are worth around $115,000, you might be able to take advantage of the 10% free withdrawal from each contract ($11,500 combined) this year and another 10% early next year. This could spread the tax impact across two years while potentially avoiding surrender charges entirely. Also, given all the medical expense documentation you'll be gathering, don't forget that your dad might be able to deduct qualified medical expenses that exceed 7.5% of his AGI on his own tax return. If he receives taxable distributions from the annuities but can also claim large medical deductions, the net tax impact might be much less severe than initially calculated. You've got a solid plan for Monday's call with the insurance company. The key is getting all the facts about your specific contracts before making any moves. Good luck, and I hope you find a solution that helps your dad without creating too much of a tax burden for your family!

This thread has been incredibly helpful! I'm dealing with a similar situation but with a twist - I inherited a rental property from my parents about 6 years ago and have been taking depreciation since then. My question is: when I sell, do I only have to recapture the depreciation I've personally taken since inheriting it, or does the depreciation my parents took before I inherited it also carry over? I know the basis stepped up when I inherited it, but I'm not clear on how that affects the depreciation recapture calculation. Also, does anyone know if there are different rules for inherited property regarding the holding period for long-term capital gains treatment? I've heard conflicting information about whether inherited property automatically qualifies as long-term regardless of how long you've actually held it. Would really appreciate any insights from folks who have dealt with inherited rental properties!

Building on all the excellent advice here, I wanted to share a specific scenario that might help illustrate the calculations. I recently sold a rental property with a similar depreciation situation. My property: Purchased for $200K, took $65K in depreciation over 10 years, sold for $320K. Here's how the tax breakdown worked: - Total gain: $320K - ($200K - $65K) = $185K - Unrecaptured Section 1250 gain: $65K (taxed at 25%) - Remaining long-term capital gain: $120K (taxed at 0%, 15%, or 20% based on income) The key thing I learned is that you need to be very precise about your adjusted basis calculation. Don't forget to add back any capital improvements you made over the years - these increase your basis and reduce your overall gain. I had added a new roof ($12K) and HVAC system ($8K) that I initially forgot to include. Also, if you're in a high-tax state like I am (New York), factor in state taxes early in your planning. My effective rate on that $65K ended up being about 34% (25% federal + 8.82% NY state), which was a significant chunk of cash I needed to set aside. One last tip: consider estimated tax payments if this sale will create a large tax liability. You don't want to get hit with underpayment penalties on top of everything else!

Another schedule C question - Does anyone know if TurboTax handles this "at risk" question automatically? I'm trying to decide which tax software to use for my freelance work.

I went through this same confusion last year! The "at risk" question is basically asking whether you could personally lose the money you invested in your business. For your photography business, since you spent $3,500 of your own money on equipment and software, that investment is "at risk" - if your business fails, you lose that money. You'd select "all investments are at risk." The "some investments not at risk" option is for very specific situations like non-recourse loans (where you can't be held personally liable beyond specific collateral) or certain complex partnership arrangements. These are pretty rare for solo freelancers. Don't overthink it - as a sole proprietor who invested your own cash, you're almost certainly in the "all investments at risk" category. The IRS language makes it sound scarier than it actually is!