Tax Write-offs for Cell Phone Use
Writing off a cell phone may seem like a way to deduct a few additional dollars from a tax return, thus helping the bottom line. However, the Internal Revenue Service watches some deductions very carefully, and cell phone deductions are in that category. While cell phones can be a legitimate business expense, charges associated with them can only be deducted in certain cases and the taxpayer should understand when it is acceptable.
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Basic Rule
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Deducting a cell phone, or the expenses relating to one or more, can be done. However, the general rule of thumb is that any cell phone being deducted must be dedicated for business use at least 50 percent of the time. If an audit were to happen, it would be up to the taxpayer to provide documentation of the phone as a business use. If the phone is used for business less than half the time, it cannot be deducted.
Proportions
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Once you have determined that the phone is used for business purposes at least half of the time, the next step is to determine the proportion of business use for the phone. Only the proportion of those minutes and texts used for business can be deducted. Typically, this involves understanding which numbers are used for business and which are likely personal. Adding minutes used for business and then dividing those minutes by the total used would provide the ratio of business to personal use.
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Employees
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While determining the cell phone use in a sole proprietorship may be easy, it becomes exponentially more difficult when cell phone use involves employees. Cell phone use for employees can be classified into two broad categories, personal use and business use. Business use of a cell phone by employees can be deducted, but personal use cannot be deducted. Further, an employee who uses a business cell phone for personal use could have that use counted as income.
Simplification
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To aid in the simplification of using cell phones as a tax write-off, there are a couple of options to simplify the issue. First, some sole proprietors may wish to get an entirely different account for business purposes. Second, those businesses with employees could institute a rule that prohibits the personal use of cell phones among employees. These simple steps would ensure cell phones are exclusively used for business purposes.
Retaining Records
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As with most records pertaining to taxes, taxpayers should keep proof of deductible expenses, including cell phone bills, a minimum of three years, the IRS recommends. This is the length of time the IRS may go back for an audit and possibly request or require an amended return. If the taxpayer cannot provide the proof for the deduction during the audit process, it will likely be disallowed.
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