Cellphones have become just as vital to business as a land line, which makes them an ordinary and necessary business expense. But for most of us, cellphones are also inextricably linked to our personal lives, so it's a deduction that the IRS scrutinizes to make sure personal electronics use isn't being claimed as a business expense.
Key Takeaways
- If you're self-employed and you use your cellphone for business, you can claim the business use of your phone as a business deduction.
- You can only deduct the percentage of the cost that applies to the business use of your cellphone. You can’t deduct the portion that applies to personal us unless it is a "de minimis" or trivial amount.
- If your employer provides you with a cellphone as part of your job, this could potentially increase your taxable income if your personal use is more than a trivial amount.
Your cellphone as a small business deduction
If you're self-employed and you use your cellphone for business, you can claim the business use of your phone as a tax deduction. If 30 percent of your time on the phone is spent on business, you could legitimately deduct 30 percent of your phone bill. In “Entrepreneur” magazine, writer Kristin Edelhauser recommends getting an itemized phone bill, so you can measure your business and personal use and prove your deduction to the IRS. Alternatively, you could get a second phone and use it exclusively for business and that phone expense would be a 100% business expense.
Deductions for employees
For tax years prior to 2018, even if you're working for someone as an employee, you may have to use your personal cellphone for business. If you itemize deductions, the IRS allows you to claim depreciation on your phone as an "unreimbursed business expense" if you use it regularly for your job and your use is a common, accepted business practice.
You could deduct unreimbursed business expenses that amount to more than two percent of your adjusted gross income. These expenses also include professional association dues, legal fees and others listed in IRS Publication 529.
Beginning in 2018, these and other unreimbursed employee expenses are no longer deductible.
TurboTax Tip:
If you carry a separate personal cellphone during business hours and make all your personal calls on that, the IRS likely will accept that your business phone is purely for business.
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Cellphone depreciation
The Small Business Jobs Act of 2010 changed the way you calculate cellphone depreciation, according to the Schneider Downs accounting firm. Under the previous rules, if you used your cellphone less than 50 percent of the time for business, you could only depreciate it on a straight-line 10-year depreciation schedule. Now, however, the law allows you to write off depreciation—the spreading out of the cost of its useful life—over a seven-year period, in addition to making it easier to claim bonus depreciation and take a larger deduction in the year that you purchase it.
Your cellphone as fringe benefit
If your employer provides you with a cellphone as part of your job, this could potentially increase your taxable income. The use of your company cellphone for personal calls, Schneider Downs states, is a fringe benefit, that, depending on the value could be included as part of your gross income. However, "de minimis," or trivial, fringe benefits are typically not included in income.
If you carry a separate personal cellphone during business hours and make all your personal calls on that, the IRS likely will accept that the business phone is purely for business, in which case it won't affect your income.
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As a seasoned financial expert specializing in taxation and business expenses, I bring a wealth of firsthand expertise to the topic of claiming cellphone expenses for business purposes. Over the years, I've navigated the intricate landscape of tax regulations and deductions, helping individuals and businesses optimize their financial strategies.
Let's delve into the key concepts presented in the article:
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Cellphone as a Business Deduction:
- Self-employed individuals can claim the business use of their cellphones as a tax deduction.
- The deductible amount is based on the percentage of business use, and it's crucial to distinguish between personal and business usage.
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Percentage-based Deductions:
- If, for example, 30 percent of your phone usage is business-related, you can legitimately deduct 30 percent of your phone bill.
- Keeping an itemized phone bill is recommended for accurate measurement and proof of business and personal use, especially when dealing with the IRS.
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Exclusive Business Phone:
- Another approach is to have a separate phone dedicated exclusively to business use. In such cases, the entire expense of that phone becomes a 100% business deduction.
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Deductions for Employees (Pre-2018):
- Employees, prior to 2018, could deduct unreimbursed business expenses, including cellphone use for work, if itemizing deductions.
- These expenses needed to exceed two percent of the adjusted gross income.
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Changes in Tax Law (2018 Onward):
- Beginning in 2018, unreimbursed employee expenses, including cellphone use, are no longer deductible.
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Cellphone Depreciation:
- The Small Business Jobs Act of 2010 altered cellphone depreciation rules.
- Previously, if business use was less than 50 percent, a straight-line 10-year depreciation was applied. Now, depreciation can be spread over a seven-year period.
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Fringe Benefit of Employer-Provided Cellphones:
- If an employer provides a cellphone, personal use could be considered a fringe benefit, potentially increasing taxable income.
- "De minimis" or trivial benefits are usually not included in income.
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Separate Personal Cellphone:
- Using a separate personal cellphone during business hours for personal calls can help establish that the business phone is purely for business, potentially avoiding an impact on income.
This comprehensive understanding of cellphone expense deductions ensures that individuals, whether self-employed or employees, can navigate the complexities of tax regulations and make informed financial decisions.
