Cell Phone - Tax Deduction for Your Business, or Not?

As the end of the year approaches, you may find yourself trying to maximize the amount of tax deductions you can qualify for. One possibility to consider is a new cell phone, if you use it for business purposes.

A cell phone is what's considered listed property, meaning the IRS realizes it has both business and personal purposes. Without detailed records showing that it was only used for business purposes, or your having a duplicate of the item to prove that you have one for business and one for personal use, you're risking an audit by claiming the entire value of the device as a business expense.

Instead of playing with fire, reasonably estimate the approximate usage that will be legitimate company use and how much will be personal usage. In my case, I recently purchased a new smart phone. While I will have little to no business use of the phone in voice calls, I will use its data plan primarily for claiming freelance writing opportunities and networking within my company's industry.

As such, I have legitimate business usage of my phone. I can deduct a percentage of my monthly data plan costs, and can either section 179 a percentage of my phone's cost, or depreciate that percentage of the phone's cost over several years.

To allow for verification, I keep a journal up to date with the business activities and time spent performing them. At the end of a period, I can review these activities and determine what proportion of the time spent using the phone was personal, and what was not.

If the phone cost me $200, and I determined my business use was 55%, I could deduct as much as $110 of the phone's cost from my taxes as a Section 179 expense.

As my data plan is an additional cost to my service plan, if I track the time spent on it separately from voice call time, I can deduct a different proportion of the data plan costs. For example, if I used the data plan for business 75% of the time, I could deduct 75% of its cost of say, $30, for a deduction of $22.50 per month.

A new phone can be a great deduction that benefits both you and your company, provided you do a little record keeping to back up your expenses. These ideas can be used for other listed property, such as printers, scanners, computers, your Kindle (if you read material related to your industry), etc. Don't be afraid to be creative, just remember to back everything up with records of time spent. And, if in doubt of anything, check with your tax preparer when filing your taxes.