Entrepreneurs in Boston: Don’t Forget Your Tax Deduction on Business Phones
May 31st, 2009
If you run a home-based business in Boston, you probably already know a lot about tax deductions and how they impact your bottom line. Sole proprietors and salespeople often need guidance with the IRS rules about deducting home business phones or a business cell phone.
Because business phones and business cell phone usage can be legitimately deducted, it makes sense to keep a separate line for making business calls, whenever possible. This will make tax time much easier, because you will not need to itemize each business phone call that is made from your home telephone or personal cell phone.
For salespeople with “unreimbursed employee business expenses,” keep in mind that the IRS requires documentation be maintained in the event of an audit. First, you must be able to prove that having a business phone or business cell phone is required as a condition of your employment. This means that business phones must be used for a substantial business reason. For example, if using the phone during your regular working hours allows you to work on your employer’s business, it is generally approved as a legitimate business expense.
Remember, you are also eligible to deduct the depreciation value of business related phone equipment. The depreciation method you choose will depend on whether your usage meets the “more than 50% use test.” Even if you use your personal cell phone for business use, you will be able to claim accelerated General Depreciation System if you use your phone for business more than 50% of the time. However, if you use it for business less than 50% of the time, you will be limited to the Alternative Depreciation System.
Your best bet will be to check in with a tax accountant before trying to deduct a mixed-use cell phone or computer, but in most cases the deduction will not outweigh the risk of an IRS audit. Just remember to keep accurate records in the event that the IRS challenges your claims.