Cellphones have become just as vital to business as a land line, which makes cellphone use a legitimate, deductible business expense. But for most of us, cellphones are also inextricably linked to our personal lives, so it’s a deduction that the IRS scrutinizes very carefully to make sure personal electronics use isn’t being claimed as a business expense.
Your cellphone as a small business deduction
If you're self-employed and you use your cellphone for business, you can claim the business use of your phone as a tax deduction. If 30 percent of your time on the phone is spent on business, you could legitimately deduct 30 percent of your phone bill. In “Entrepreneur” magazine, writer Kristin Edelhauser recommends getting an itemized phone bill, so you can measure your business and personal use and prove your deduction to the IRS. Alternatively, you could get a second phone number and use it exclusively for business.
Deductions for employees
Even if you're working for someone as an employee, you may have to use your personal cellphone for business. If you itemize deductions, the IRS allows you to claim depreciation on your phone as an "unreimbursed business expense" if you use it regularly for your job and your use is a common, accepted business practice.
You can deduct unreimbursed business expenses that amount to more than two percent of your adjusted gross income. These expenses also include professional association dues, legal fees and others listed in IRS Publication 529.
The Small Business Jobs Act of 2010 changes the way you calculate cellphone depreciation, according to the Schneider Downs accounting firm. Under the old rules, if you used your cellphone less than 50 percent of the time for business, you could only depreciate it on a straight-line 10-year depreciation schedule. Now, however, the law allows you to write off depreciation -- the loss in value from wear and tear -- over a seven year schedule, in addition to making it easier to claim bonus depreciation.
Your cellphone as fringe benefit
If your employer provides you with a cellphone as part of your job, this could potentially increase your taxable income. If you use the cellphone even slightly for personal calls, Schneider Downs states, that constitutes a fringe benefit, which must be calculated as part of your gross income.
If you can prove that you carry a personal cellphone during business hours and make all your personal calls on that, the IRS may decide the business phone is purely for business, in which case it won't affect your income.