Tax Implications of Cell Phone Usage
Cell phones are an essential tool in business. They allow you to quickly communicate with colleagues, clients and staff. However, not all cell phone expenses are tax deductible. Your ability to deduct cell phone usage on your personal or business tax return is based on a range of factors. When cell phone deductions are available, they can help reduce your annual tax liability.
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Ownership
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If your employer owns your cell phone contract and pays the bill directly, none of your cell phone expenses are tax deductible. Even if you occasionally use a second personal phone for business calls. Since your employer provides you with a phone for business, justifying a phone deduction to an auditor may prove impossible. Your employer, however, must also prove that your cell phone usage is business related. Avoid personal calls on your business cell phone. If your employer is penalized for your cell phone abuse, you might risk losing your cell phone privileges or, in some cases, termination for violating company policy.
Personal Use
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Personal cell phones can be used to conduct business on behalf of an employer or yourself. When an employer requires you to use your personal cell phone to conduct business, you can deduct the percentage of cell phone usage related to business on your taxes as long as you are not reimbursed for these expenses. Keep track of calls you made by saving phone records and highlighting calls where possible. Auditors may request phone records to determine whether your deductions are accurate.
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Splitting Bill
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Avoid using business phones for personal use and vice versa. Get a separate line for each to avoid any confusion in case you are audited. Entrepreneurs with one phone line, even if this line is only used for business, should consider getting a land line to demonstrate a separate line for personal calls. Small business owners with only one phone line are usually assumed to use that line for personal and business calls. Separate bills help you remain organized during tax season and keep track of your cell phone usage.
Amounts
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Counting the number of business calls made on your cell phone can be a tedious process. However, maintaining itemized reports for up to three years after your tax return is filed is called your burden of proof. Tax payers must keep records of any deductions or credits claims on their taxes. "Because of the way a cell phone can be used ... people need to keep good records and keep their actual telephone bill so they can demonstrate that a majority of the calls were business calls," explains Donna LeValley of Entrepreneur.com.
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References
- Photo Credit cell phone image by Mat Hayward from Fotolia.com
