Deducting Your Telephone Expense


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oldcellphoneThe IRS rules on telephone deductibility for the home office are firmly back in the 1980’s (or earlier…) Personally, we have 3 Magic Jack lines, a Skype line, a land line and 2 cell phones. So, what’s deductible?

The IRS says that in order to get a deduction for telephone expense, you must follow this guideline.

“Telephone. The cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even though you have an office in your home is not deductible. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses.”

In our case, we have a land line. That’s so we can have a fax, but it does plug back and forth to a regular phone. So, we don’t take the deduction for the land line.

For the cell phone, the IRS is going to want to see that you allocate business use and personal use. Yes, I can hear the groans already. That doesn’t even make sense. But remember the cell phone deductibility rules were written back when you could use the cell phone as a personal defense item. Does anyone else remember those huge cell phones? And do you remember how expense they were to run?

Now we have a hundred different styles and functions on cell phones and most are covered in a plan of some type. You aren’t charged by the call, or by the minute, unless you exceed your plan.

Still, the IRS is going to want to see some kind of break-out. In a perfect world, that means you or your bookkeeper will go through each month’s cell phones and break out what is business use and what is personal use and allocate the monthly fee accordingly. Most likely most taxpayers will use an estimate of the ratio between business and personal numbers. Then, if ever audited, they’ll have to go back and prove their estimate looking up each number in a client database.

But how to deduct Magic Jack and Skype? If you have the requisite land line for personal, take the deduction. Without that, you have to have some phone as your personal number. Can a Magic Jack, etc. fulfill that requirement? And if the answer is ‘yes’, why not just take the Magic Jack (at about $10/year) as your personal and then take the deduction for your land line?

Why not indeed. I don’t what the IRS would do in case of audit. On the surface, it looks okay. But if they haven’t dealt with cell phone plans yet, I’m pretty sure VOIP is on the horizon.



5 Comments

  1. Anita says:

    Diane,

    Just a quick question about pre-paid services on a cell phone. Only minutes are purchased so no bills are issued or even tracked, that I know of. I have 1 land line I use 99% for business, bundled with my internet and cable, but I claim the phone as personal so no deduction there.

    I deduct 100% of the cost of the cell. I don’t do much phone time with clients so a prepay is perfect for me. I spent about $250.00 total last year for my cell service. I also have a Skype account that I deduct 100% for business- it’s used only for international calls.

    What would happen in an audit if I can’t get a list of calls for my cell phone?

  2. Diane Kennedy says:

    It sounds like you’ve been taking one land line as a deduction and one as personal (and not deductible). If I understand that correctly, you’re okay there.

    Technically on the cell phone, you need to break out personal versus business. If you’re audited, you may get caught on this one. You have 3 years that are “open” with the IRS, unless fraud is found. If this is all that is wrong, there’s no fraud.

    BTW, there is talk that Congress may drop this requirement on cell phones….thank goodness!

  3. Dan says:

    Thanks Diane! Great to know! (@Teresa why not get a magicjack for personal and use the cox and cell for business)

  4. Teresa says:

    Hi Diane

    I have 2 phone lines but Cox does not break it out and I use the 1st line as personal and for the business fax and 2nd line for the business. I was also deducting my cell phone bill in its entirety. Do you suggest I pay back the company (I have a C corp)for these bills? And if so, how far back as I have been in business for 8 years. I just think it will take way too much time for me to go back and highlight all the numbers in my cell phone bills and phone bills.

    I would appreciate your input

    Thanks, Teresa

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