I'm looking to reduce costs for my business. I have 9 phone lines all through the Business Department of the phone company which all go to one of two commercial locations.
Each of the two locations has a "primary" number, the rest of the lines are for calling out, or calls rolling over, or faxing. Using residential lines for 7 of those 9 would save me a decent amount of money each month.
I asked the phone company rep why I should use a business line instead of residential lines and he said I wouldn't get a business listing (unnecessary for those lines), and I wouldn't be able to deduct the costs as a business expense.
That last bit doesn't seem accurate to me.
Does the IRS (and state tax authorities) care how phone lines are categorized by the phone company?
The IRS still has an archaic rule that a business phone has to be a second phone line, and if you do not have a second phone line, only the Toll Calls for the business are allowed. But this does not seem to apply to you. And in many cases, Toll Calls are an antique and archaic term.
If you have something that looks and feels like a hobby business the IRS would look to all the small stuff to sort out if this is a business for profit or a hobby business.
If so, small things like a business phone for this business weigs in on the side of it being a business for profit.
The direct answer to your question is: No, the IRS does not care how the communication company categorizes your phone lines. The IRS cares that you do not deduct the cost of telephone services that are not used for business.
If you use your residential line (the line at your residence) for personal and business purposes, the IRS will not allow you to deduct the cost of the basic line for local service. You can't deduct the cost of the line as the IRS assumes that any residential line is first and foremost for personal use. This basically leaves you with only deducting those business calls that are toll calls for which you are charged directly and any additional service that is used for your business for which you are charged on that first line. Any additional lines you have that are used for business are deductible.
You appear to be discussing lines installed at your business location, not your home. If you use those lines for business, then they are deductible regardless of how the provider categorizes them. However, all of the tariffs I have seen, have pricing for residential lines installed at one's residence and pricing for business lines that are not installed at one's home. I would be very surprised if a communications provider would provide you residential lines (residential rates) at a location that was not a residence. They would be in violation of the tariff.
Your question has already been answered. In NC the local phone carriers tell me that they won't run a residential line to a business location. Whether that is right or not I do not know but they will not do it for me.
That has nothing to do with how the phone company characterizes the lines. It does make sense that the IRS considers a residence to have a residential line, so if the taxpayer attempts to claim that all lines are business, one will not be deductible.
In a word, no. Only if your business is located in your personal residence, does the basic costs of the first line into the house become non deductible.
You've gotten a lot of good responses, but I'd like to add something -
First, the phone company will allow you to install a business number in a residence but I have NEVER seen them allow a residential number at a business address. So if you're operating out of commercial space I doubt seriously that the phone company will issue you a residential number. Their primary reason for this seems to be tied to their rate structure - they charge MORE for business service than they do for residential service.
Second, have you looked into VOIP phone service? VOIP is short for Voice Over Internet Protocol - an internet phone like Vonage, Voice Pulse, Packet
8 or any one a myriad of others.
We switched over to VOIP about 5 years ago and have been very happy with the result and the costs. We keep ONE business line set up as a dedicated fax line BECAUSE we need one set of paired copper wires coming into the office so we can get high speed internet in the office.
All of our voice service is handled by VOIP service though a nationally recognized VOIP company. Here's what we get -
1 - phone service that for all practical purposes acts like phone service;
2 - answering machines on every line;
3 - multiple options like call waiting, caller id, three way calling, call forwarding, and such;
4 - conversion of ALL voice mails into .wav files which are then e-mailed to a directed e-mail address. THIS is the best feature of this system. When people call and leave messages not only can we listen to them BUT we can SAVE the voice mail message.
We can turn the options on and off from any computer anywhere in the world by logging into the carrier's web site.
There are some other advantages to VOIP -
A - cost - we pay about $40 per line, flat. The only extra cost is when we call overseas clients. I can call Hong Kong for about $0.05 per minute;
B - you can use most any regular phone by getting an adapter - ours came with the service;
C - we can mask the outgoing number for caller id - so while I have a separate number on my desk, when I call you, you see the front desk number. This cuts way down on people calling back direct to my desk by looking at their caller ID;
D - We can block certain numbers -
E - I can set up a distinctive ring for certain numbers - my home number and my wife's cell number are set with a distinctive ring so I know it's her calling even I can't see the phone;
F - You can get virtual numbers, easily and cheaply - I'm in Annapolis, MD, so if I had a lot of clients in San Diego, CA I could get a San Diego local number for them to use - essentially setting up a virtual office anywhere I wanted one
There are some downsides to this though -
1 - if the internet goes down, you have no phones - having a dedicated line for the fax helps. Also, the system is set up so that if our internet is interrupted the calls automatically get routed to our cell phones;
2 - if you're running a multi-line PBX type of service you'll need specialized hardware - this is a bit inconvenient, but it isn't horrible. I think Packet8.Net has decent prices on the equipment;
For us, though, the service is good, the call quality is very good, the system is stable and the price is about $300 a month less than regular phone company service. Plus, the numbers are portable - when we moved our office across town three years ago it took the phone company a week to transfer the hard number over. In the meantime we had the VOIP phones forwarded to our cell phones and our clients never knew - once the hard line went active and we had internet service, all we had to do was plug in the VOIP boxes and the rest of our numbers were up.
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