Are Phone Taxes Deductible?
Because phone taxes are not a category for which the tax code generally provides a deduction or credit, the deductibility of phone taxes will be based primarily upon whether such taxes can be characterized as a valid business deduction. Determining if such a characterization is legitimate can be complex and depends on several factors.
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Personal Use
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Neither your home phone bill nor the taxes associated with that bill are generally deductible, though that's subject to certain exceptions for business use. The tax code does not provide a deduction for most consumer goods and services, and a phone bill and the taxes associated with it are considered consumer purchases in the same manner as restaurant meals or clothes. In some cases, you may be able to deduct state sales taxes on your federal income tax return in lieu of deducting state income taxes; in this case, the portion of any phone tax that is part of the sales tax -- as opposed to a phone-specific tax -- may be deductible.
Business Use
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Phone bills incurred by a business in the course of ordinary business use are deductible, as are the phone taxes associated with such bills. This follows the general rule that a business can deduct all ordinary and necessary expenses it incurs while seeking profits. If a business uses an internet-based or VOIP (voice over internet protocol) phone system to make calls, it may also deduct taxes associated with those services.
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Home Office Use
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Taxes paid on a phone bill at a home office may be deductible. If a home office has a second phone line installed that goes directly into the home office and is used for business purposes only, the taxes on that line can be deducted in their entirety. If an employee with a home office uses the home's existing phone line for local calls, however, that phone line and the related taxes cannot be deducted, even if the line is used partially for business purposes. Long distance calls, and any taxes apportioned solely to those calls, may be deductible.
Additional Considerations
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Phone taxes can be a difficult deduction to track, as it can sometimes be hard to tell which taxes are associated with which part of a phone bill. If you make long distance calls for business using a home phone or cellphone, the taxes associated with those calls should be tax deductible. However, because some taxes apply to a phone line and some apply to the marginal cost of each call, you must be careful when determining which taxes can truly be apportioned as business expenses.
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