Did you know that in 2016 over half of American households had cellphones as there only phone service? This was the first year cellphones overtook landlines. So you have the new iPhone, Samsung, or whatever new device works best for you. Whether on occasion or on a regular basis, you may have used it to view emails, make calls, and other work related items. As part of our expert bookkeeping tips, we want to share with you how you can and should deduct phone expenses for your small business, or any other type.

Houston bookkeeping Deduct Phone

The History of Deducting Phones for Business

In the bad old days before everyone and their kid had a cellphone, employers used to give their employees portable phones, beepers, and other means of mobile communications. Initially the IRS treated these mobile devices as income. This income was derived from the amount of business calls made on the device. Obviously, different workers had different bills, and the IRS knew that.

Soon after, the IRS learned what we all knew. Just because the boss gave us a phone for work purposes, doesn’t mean we didn’t put it to personal use. This included calling home, calling friends (sometimes at long distance rates), and even for everyday tasks like ordering food or checking back with a doctor.

The IRS responded by insisting that employers force employees to use their phones for work only work purposes. It didn’t work.

The Changing Law for Deducting Phone Expenses

Change came in 2009 when the IRS figured out how much they were losing by using this ineffective means of collecting taxes. They asked Congress for help in writing a law “considering other possible approaches… suggestions for alternative approaches to simplify the procedures under which employers substantiate an employee’s business use of employer-provided cell phones.” You can read the entire statement here .

The next year they were able to pass the law we all use now. As part of the Small Business Jobs Act, employers were allowed to treat “a cell phone primarily for noncompensatory business reasons” as a nontaxable to the employee. They even said they won’t be requiring recordkeeping of business use to get this tax-free deduction.

The Reality of Deducting Phone Expenses

Be sure to keep records of your bills when deducting phone expenses. The recordkeeping mentioned above by the IRS pertains to each business call. You don’t need to keep a log of that. However, as bookkeepers we highly encourage it. This is especially true for employees paid on an hourly wage.

What if you are a small business of one? If your cellphone is used primarily for your work, you may be able to deduct it. Most carriers will give you a detailed bill on your cell usage. Calls and tasks like these can be deducted. This is also true if you use your phone to do other business related tasks. These include receiving or sending emails, tracking business miles, using your phone to take pictures of receipts, etc.

Houston Bookkeeping to Deduct Other Items for Small to Midsized Businesses

If your small to mid-sized business is in Houston and needs a bookkeeper to help with deductions and other items, feel free to contact us.

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