Most entrepreneurs today will tell you how important it is to have a smartphone for your business. What they may not tell you is that you may be able to write off phone expenses every year on your taxes. Here’s how to deduct your cell phone bills when filing taxes.
Calculating Your Deduction
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You can deduct your cell phone bills from your taxes if you file as self-emloyed or if your total business expenses combined with other specified deductions exceed 2 percent of your total gross income. If you want to take this deduction, it’s essential to know exactly how much time was actually used for your business from your phone. It’s likely that less than 100 percent of your cell phone time was used for business purposes, so the IRS will not allow you to deduct your entire phone bill.
Because of this, you can only deduct the percentage of your bill that represents how much your phone was used for your business. For example, if 60 percent of your phone time was spent talking to clients, then the IRS will allow you to deduct 60 percent of your annual phone bill from your taxes. Many times the numbers won’t be so cut and dry, so when in doubt, underestimate the percentage. Unusually high amounts can result in an audit.
Keep Phone Records
In case of an audit, it’s important to retain copies of your itemized phone bills. The IRS will need to be able to see who you called and for what purpose as well. Keeping detailed records on a calendar or in a spreadsheet will go a long way in making sure you get the deduction you’re due.
When the tax year is over, don’t be quick to throw out your records. The IRS can audit anyone up to seven years after any tax year, so if you’re subject to an audit five years down the line, being ready with those old records will help.
Deducting With a Family Plan
While it may seem like a hassle to deduct your bill if it’s part of a family plan, the process is actually simple. Determine how much of the bill per month is yours, which is especially easy with a carrier like T-Mobile, which simply divides the total cost of the monthly bill by how many lines are in use. Check your carrier for plan details so that you can accurately report and deduct your phone bill on your taxes.
Having a Separate Phone for Personal Use
While not practical for everyone, having two separate phones, one for your personal use and one for business is beneficial to some. The IRS will even allow you to deduct the entire cost of the phone – the initial purchase and the monthly bills – if the phone was exclusively used for your business. The LG V20 is a high-end smartphone with the latest technology and a large screen that makes it great for self-employed entrepreneurs who need to keep in contact with clients through emails and phone calls.
Where to Claim Deductions
When tax season comes, it’s important to know exactly which forms to fill out. It can be easier if using a service like TurboTax or H&R Block, as they’ll walk you through the steps and show you at every step how to get the biggest refund. If you’ve decided to do your taxes yourself, however, make sure you fill out Form 1040 and Schedule A if you’re filing as an individual or fill out Form 1040 and Schedule C or Schedule C-EZ if you’re filing as self-employed.
If using Schedule A, you’ll also need to fill out Form 2106 or Form 2106 EZ, which will document your itemizations. Be warned that if filing this way, the government will only allow you to deduct the amount of your bill that exceeds 2 percent of your total yearly income. It may be safer in this case to take a standard deduction or to file as self-employed.
If filing as self-employed, simply fill out line 48 on Schedule C or C-EZ and write in the total amount on line 27. No further paperwork is required.
Deducting your cell phone charges has never been easier for today’s self-employed. Simply follow these guidelines and you’ll be on your way to a bigger deduction.