Whether you’re a seasoned business owner or a tender-footed entrepreneur, tax time often comes with a level of uncertainty. Much of this confusion stems from what expenses are deductible and how to best maintain a healthy bottom line. While I don’t have your tax filings in front of me, I can help you answer one frequently asked question that seems to ignite conversations every year: Is my cell phone bill tax deductible?
If you’re asking about this as well, you’re not alone. Google Trends shows that online searches dealing with mobile devices and deductibility consistently spike before tax time. To ensure the answer to your question is made loud and clear, we’ve outlined when cell phone bills qualify as expenses, what constitutes business use, and how to keep track of your data usage.
WHEN DOES MY CELL PHONE BILL QUALIFY AS A BUSINESS EXPENSE?
Regardless of how much you use it, your cell phone bill is tax deductible as a business expense when you use it for business purposes. This is easy to calculate if you have a separate phone that you only use for work, as 100% of this bill can be written off at tax time (which equates to a lower tax responsibility and more money in your pocket). However, when you use one phone for both business and personal reasons, deductions get a little more complicated.
According to the Internal Revenue Service (IRS), expenses related to something (like a cell phone, tablet, or computer) that is used for both business and personal purposes can be deducted based on actual business usage. In other words, if you use your cell phone for business purposes 40% of the time, you can deduct 40% of related expenses on your tax return. Conversely, this deduction can not be used by employees who are given work phones, as they are not the individual or entity paying the bill.
From a worker’s standpoint, receiving a cell phone as a gift from an employer could increase his or her taxable income, but only if the phone is used for reasons other than business (fringe benefits). On the other hand, devices provided by employers that are solely used for business purposes are not required to be reported as income, but are also considered non-deductible.
WHAT CONSTITUTES AS “BUSINESS USE?”
As modern technology advances, mobile devices are becoming our digital tool sheds, packed with every tool you’ll ever need to manage daily life. Check your email, order a pizza, and start your car—all in a matter of a few clicks, taps, and swipes. But as people spend more time on their devices, the line between “business” and “personal” use gets blurry.
For this reason, the IRS has clarified that in order to be deductible as a business expense, items must be both “ordinary” and “necessary”:
Ordinary: These expenses are common and accepted in the industry.
Necessary: Necessary expenses are those that are helpful and appropriate for your trade or business.
Generally, operating a business requires the use of phone calls, messages, emails, and web searches. That being said, each time you conduct business with your phone—whether it involves making a call or streaming a how-to video for your team—those related data or voice & text charges are likely tax deductible.
HOW DO I KEEP TRACK OF MY BUSINESS USAGE?
IRS guidelines require business owners to keep adequate records of their expenses. This means that you should have well-documented evidence of your cell phone usage, be it a traditional logbook or an expense-tracking app.
While every cell phone service provider has a different method of reporting your usage, you are able to obtain those records for specifics regarding data and messaging. You can calculate actual business usage by examining an itemized phone bill and highlighting every instance of professional use and dividing it by the total number of items. If differentiating between the two becomes too laborious a process, consider opening a business line that’s strictly used for your organization.
SAVE MORE ON YOUR CELLULAR ACCOUNT
When it comes to maintaining a healthy bottom line, it’s critical that businesses slash unnecessary expenses. To increase cost savings, companies should conduct a cellular and phone service analysis as well as a full-inventory and utilization report. In 2018, business expense management firm, Verify Services, was able to save a staggering 23% on their clients’ phone service expenses by examining their usage.
In conjunction with monthly bills from your service providers, consult with a professional about your insurance coverage, bring-your-own-device (BYOD) employee policies, and telecom/internet services. The best consulting firms ensure you have an insurance policy that fits your business’s exact needs. As Entrepreneur.com notes, if it’s been a couple of years since you’ve shopped around, you should be able to save approximately 20% on your insurance premiums.
To save on hardware costs and not be bothered with “tech stuff,” some companies opt for a laissez-faire stance on BYOD. Although this tactic can save some money initially, risks of cybercriminals uncovering vulnerabilities in your network also increase. When examining the monetary damage of data breaches in 2018, IBM Security found the average cost for a business exposed to an attack was upwards of $3.9 million in lost business, legal fees, and employee time spent on data recovery.
Finally, because of the time investment and stacks of paperwork that come with it, many businesses forgo shopping around for new telecom and internet packages. At Verify Services, our team is often able to slash another 10% of our clients’ monthly bills by optimizing these tech expenses (without switching providers).
If you’re interested in discovering how you can save on your monthly business bills, contact Verify Services for a free cost-efficiency audit. It takes less than 60 minutes and could save you thousands of dollars per month on internet, cellular, and utility bills.