Tax deductions are one of the perks of being a business owner. Cell phones and smartphones have become a regular part of business and that means that your mobile bill is now a legitimate business expense that can be deducted from your taxes. However, most of the world has linked their personal and business lives into one device, so the IRS wants to ensure that this deduction is taken properly.
It might get more scrutiny than the rest of your tax return, so it’s important to learn how to write off your cell phone as part of your business expenses. First of all, we’ll tell you that it depends on whether you’re a business owner (self-employed) or an employee. We’ll start by looking at small business deductions, and then we’ll explain how it works if you are using your personal phone as an employee so that you know how to proceed.
For small business owners and independent contractors
Anyone that claims to be self-employed is capable of deducting their mobile phone use from their tax returns. However, you can’t simply deduct the entire bill as a business expense (unless you have a separate line and device for business use only). You have to claim it based on how much is used for business versus how much use is personal.
For example, if you spend about 40% of your time on your smartphone for business, then you can deduct 40% of the related expenses. It’s important to get an itemized phone bill so that if the IRS ever wants to audit this, you can prove the deduction was correct and allowable. This can take some time, so you might also want to consider enlisting the help of an accountant when it comes to complex business deductions and tax issues.
What about employees?
Anyone who was using their cell phone for business use before 2018 was able to itemize the deductions and claim depreciation as an “unreimbursed business expense.” Unfortunately, in 2018, the tax laws changed and this deduction is no longer possible. For those who are required to have a phone that they can use for business, the IRS suggests employees make the employer provide a company-issued phone so that there is no confusion about its use.
The fringe benefit concern
If you use an employer-provided cell phone for personal calls, you may have to include that as part of your income because it’s considered a fringe benefit. If, however, you can prove that you have and use a personal phone during business hours and that your business phone is only for business, the IRS will likely decide that it shouldn’t affect your income. The best thing that you can do is to trust your taxes to a qualified expert and make sure that you have separate phones for business and personal use, no matter what your role in the organization might be.
Employee phone plans can be affordable
If you’re a small business owner (or an owner of any size business, for that matter) and you’ve now come to realize that you have to get separate phones for your business, don’t worry about creating a huge expense. There are several affordable options for business cell phone plans, for every type of business including those that have five or 500 employees. Take the time to shop around for phone plans, see if you can get a business deal from your personal provider, etc. There’s no limit to what you might find.
And speaking of affordable, so are professional accounting and tax services, which will ensure that your business books and tax documents are always in good shape. You can even get the advice of a financial professional before you invest in company mobile plans and phones so that you make the best choice for your business.
Employees cannot be forced to do business on personal phones
This one is for employers and employees alike. It is not only unprofessional, but it is not possible for a company to “demand” that people be available on their personal mobile devices for business-related matters. Some employers try to scare people into believing that this is true. Even worse, some employers and business owners believe it’s true for themselves. They don’t even realize that they’re demanding something that is not allowed.
Whether you’re the owner or the employee, you need to know how to create solid boundaries between business and personal use of cell phones, as well as other devices and services. And if you’re thinking about making your SMB employees take work calls on their personal phones, think again. They can if they’d like, but they certainly don’t have to and they’re doing it as a favor to the business owner, and nothing more.
The only way any company can demand that employees be available via cell phone is to provide them with that cell phone and a service plan to go with it. This way, there will be no confusion about the taxes and you won’t have to worry about itemizing every single bill to get the tax benefits of business deductions.
So much planning and admin and leads, how will you handle it all?
While you’re busy trying to figure out how to set your business up for success and for the best tax situations, who’s handling all the leads that are coming in? If you’re doing it right, it starts with a 24/7 answering service to guarantee that you never miss an opportunity. When you partner with the virtual receptionists at Smith.ai, it also means that you get assistance for things like appointment scheduling, lead intake, and even live website chat.
If you’re still in the marketing stages, ask about our assistance with outreach campaigns and outbound sales support. And, as always it comes with a custom strategy to make sure that we handle every last need, no matter what your business requires.
To learn more, schedule a consultation to discuss what the 24/7 virtual receptionists at Smith.ai can do for your business, or reach out to us at hello@smith.ai to talk further.
