Are Cell Phone Expenses Tax Deductible? - John R. Dundon II, Enrolled Agent
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Are Cell Phone Expenses Tax Deductible?

Are Cell Phone Expenses Tax Deductible?

I’ve been getting asked this question quite a bit so I put it directly to the IRS.  My guess is that I wasn’t the only one who asked because today the Internal Revenue Service issued guidance designed to clarify the tax treatment of cell phones.

The guidance relates to a provision in the Small Business Jobs Act of 2010, enacted last fall, that removed cell phones from the definition of listed property, a category under tax law that normally requires additional recordkeeping by taxpayers.

The Notice provides guidance on the treatment of employer- provided cell phones as an excludible fringe benefit. When an employer provides an employee with a cell phone primarily for noncompensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require record keeping of business use in order to receive this tax-free treatment.

The IRS additionally announced in a memo to its examiners a similar administrative approach that applies with respect to arrangements common to small businesses that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for noncompensatory business reasons, to use their personal cell phones for business purposes may treat reimbursements of the employees’ expenses for reasonable cell phone coverage as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee’s regular wages.

Under the guidance, when employers provide cell phones to their employees or where employers reimburse employees for business use of their personal cell phones, tax-free treatment is available without burdensome record keeping requirements. The guidance does not apply to the provision of cell phones or reimbursement for cell-phone use that is not primarily business related, as such arrangements are generally taxable.  Details are in the memo and in Notice 2011-72



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