Can one deduct a cell phone for business use? For landlines there is a special rule that the first landline is not deductible even if it is used for business. But I can't find a similar rule for cell phones.
A cell phone is just a computer, especially things like the iPhone, so I figure it should be deductible provided you allocate between personal and business use.
How to allocate between business and personal use? I suppose you could divide business minutes by total minutes times base cost with taxes, business text messages by total text message times text message plan cost with tax, business time/MB on apps/internet divided by total time times data plan cost. But this is painful.
Although the language in Pub. 535 seems to refer to landlines, pubs are not definitive statements of the tax code. I suspect that text was written before the widespread use of cell phones and that the IRS would interpret the regulations to cover the first telephone number, giving preference to a physical line over a wireless one. The real answer to your question will be found in court decisions, if there are any.
are not definitive statements of the tax code. I suspect that text was written before the widespread use of cell phones and that the IRS would interpret the regulations to cover the first telephone number, giving preference to a physical line over a wireless one. The real answer to your question will be found in court decisions, if there are any.
For "business use", do you mean as an employee, or self-employed? In the former case, the cell phone must be for the convenience of the employer, and required as a condition of employment, to be deductible.
Starting in 2010, cell phones are no longer classified as listed property, eliminating extra usage logging and special depreciation requirements. A business can provide a cell phone to employees and no longer has to include the FMV of personal use in wages, it is an excludable working condition fringe benefit.
One tax research service says that the basic monthly plan cost for a personal cell phone also used for business is *not* deductible, and that additional business-related charges (roaming, etc) can be deducted if substantiated, but this was written before the listed property change.
As the OP pointed out, there is no obvious way to allocate business vs. personal use with today's typical smartphone service package. But (not being a smartphone user yet myself), isn't there some type of app that would have the user to tap a P(ersonal) or (B)usiness choice each time they initiate some activity with the phone, and have the activity and clock time logged? Such a time log would be a reasonable way to allocate usage, IMO.
It's safe to say, the bigger the bill and the greater the portion deducted for business, the more likely it will be challenged in an audit situation.
The best analysis I have seen on what has changed since passage of the
2010 tax act that removed the phone as listed property is by Price Waterhouse Coopers. See link below.
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651 Unfortunately, the Treasury has not issued guidance on the subject. By removing the phone from the listed property category, the employer can take a business deduction for the phone in the same manner that it takes a business deduction for the land line it provides to "employees". Whether or not personal use can be excluded from an "employee's" wages as either a working condition fringe benefit or a de minimis fringe benefit remains unanswered. Nor has the Treasury issued guidance on whether a self-employed individual can deduct the full cost of the phone without determining personal use.
Until such time that we have guidance, a self-employed individual who uses a cell phone, pda, smartphone, etc. for business and personal use, should allocate between the two. Given the nature of how these phones are marketed, the only way I know of to allocate is to analyze the calls, messages and data usage. This is impossible. You might be able to analyze the phone calls and the messages. You can not analyze the data usage. Therefore, if I was in this position, I would review the detail from a typical month (whatever that means) of usage for phone calls and messages and use that percentage for allocating between business and personal. I would also allocate the upfront charge for the device using the same percentage. Now I know some of you are going to say what if there is no typical month because my business is very seasonal and/or usage goes up and down like a yo-yo..... My answer is, use a reasonable method and document it should you be audited.
The removal of cell phones from the listed property rules is certainly a help to taxpayers. Of course, it is a matter of degrees. There is always a burden on taxpayers to justify their deductions, but that burden is harder to achieve when the property is considered "listed".
My reading of the piece that relates to employer inclusion of fair market value is that when the use is predominant, there is no inclusion. I expect that predominant means more than half.
So all in all, it is a helpful change for taxpayers, but certainly not a get out of jail free card when it comes to deductibility (or non- inclusion in the income of employees) of cell phones.
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