home phone

[oceanlovin'ea]

I know that IRS has always said that the first line into a home is not deductible. But there are new situations that are arising now with people working from home.

I have 2 clients with similar situations. One is an employee of a major hotel chain. She works from home as a customer service representative. She makes reservations and helps with problems. She is required to have a land line and a secure internet access. She also had to have a addon to her phone that patches her into another area code. They have never had a land line in the last 10 years. So this is definitely a business expense.

The other client worked as a customer service rep for a major drug store. She also was required to have a dedicated land line and secure internet access. She also had to have a facebook account so she could guide people through setups, etc. She also worked for another company where she answered phone calls and sent out nurses to facilities. She had to have a phone line and a fax line (she could use the same line for both),

The point being that these people only have the land lines because of the requirement of their employment. When no longer needed, they will probably drop the land line.

Would you take that deduction on a tax return? If audited, it would probably be challenged but there is a good argument for taking the deduction.

Want opinions....Thanks

Linda, EA

[Possi]

I never do

I never do, so I'd sure like to know if anyone else thinks it's ok. I only have a landline so I can have the fax, and so I can talk to the IRS on a secure line. Otherwise, I wouldn't have one, either.
I expense all but that first line. I take the call waiting, caller ID and call forwarding, but not the basic line.
Since I'm not an EA, I could learn from the others whether or not I can be more aggressive with this phone line.
Thanks for asking!

[Larmil]

However outdated, the law is still the law. As I understand it, even if you pay higher business rates (you don't get the YP otherwise) and that line is your only landline, you cannot deduct the base rate.

[MilTaxEA]

This is not just an IRS position, it is the law as written by congress:

Sec. 262. Personal, living, and family expenses

(a) General rule
Except as otherwise expressly provided in this chapter, no
deduction shall be allowed for personal, living, or family
expenses.
(b) Treatment of certain phone expenses
For purposes of subsection (a), in the case of an individual, any
charge (including taxes thereon) for basic local telephone service
with respect to the 1st telephone line provided to any residence of
the taxpayer shall be treated as a personal expense.

[Larmil]

This is not just an IRS position, it is the law as written by congress:

Thank you, Michael, I was too lazy to look up the actual code.

[Burke]

How about this? Apply for LLC status and register the phone line under the business name. And I could make a case for the same action even if it were a sole proprietorship -- which is not an LLC. Get an EIN and a business name. I agree the law is outdated as it now stands. The law was written (as its title suggests) to prevent the deduction of personal living expenses. If such persons have cells phones for personal use, then this further suggests it is actually a business line. If they do not, it will be practically impossible to make a case. Keep the appropriate records to document.

[taxea]

I know that IRS has always said that the first line into a home is not deductible. But there are new situations that are arising now with people working from home.

I have 2 clients with similar situations. One is an employee of a major hotel chain. She works from home as a customer service representative. She makes reservations and helps with problems. She is required to have a land line and a secure internet access. She also had to have a addon to her phone that patches her into another area code. They have never had a land line in the last 10 years. So this is definitely a business expense.

The other client worked as a customer service rep for a major drug store. She also was required to have a dedicated land line and secure internet access. She also had to have a facebook account so she could guide people through setups, etc. She also worked for another company where she answered phone calls and sent out nurses to facilities. She had to have a phone line and a fax line (she could use the same line for both),

The point being that these people only have the land lines because of the requirement of their employment. When no longer needed, they will probably drop the land line.

Would you take that deduction on a tax return? If audited, it would probably be challenged but there is a good argument for taking the deduction.

Want opinions....Thanks

Linda, EA

If the phone is only used by the TP as a business phone and the internet can be allocated between business and personal then I would deduct it on the 2106. Are you doing an 8829 for this client? Does the client have an office at the employer's site?
I would have TP get a letter from the employer, on letterhead, stating that the work she does at home for the employer is for the employer's convenience and a necessary requirement of her employment. I would keep it in my client file in case any questions are raised by the IRS.

If she hasn't had a home phone for 10 years and got it as a requirement of her job and does not use it for personal calls then I think it could be justified as a business phone. As long as she understands that it is never to be used for personal calls for any reason and with the letter from the employer I would have no problem taking a home office and the phone on phone along with other 2106 expenses.

[oceanlovin'ea]

Thanks

Interesting discussion.

Client #1 that works for a hotel chain. They train these people and they all work from home. I don't think any of them are actually in a hotel or a hotel location. So I would imagine it is in the contract.

Client #2 does have an LLC and an EIN. It is required to work for Arise. Then they contract with other businesses for customer service reps.

So I guess I could be aggressive and deduct their phone lines as long as they understand that it might not stand up in an audit but we would definitely try.

I am sure when the law was written, cell phones were not that common if even in existence and most people had land lines. But now most people only use cell phones. I'm an odd ball. We have had our land phone since we were first married and have had the same phone number since probably 1970.

Even though my business uses my land line phone number, I don't deduct the phone charges or even a portion of them. I could deduct the add ons though. I have a separate number for my fax machine and that I do expense.

Linda, EA

[taxea]

If the are an LLC EIN then they have their own business and contract out their services. The phone, in this case, is a business phone. Just make sure they understand that they are not to use it for personal use.
The IRS gave up on trying to require allocating cell phone usage and are now accepting the deduction as long as it is use at least 80% for business.
I would call the cell the first line!

[MilTaxEA]

If she hasn't had a home phone for 10 years and got it as a requirement of her job and does not use it for personal calls then I think it could be justified as a business phone. As long as she understands that it is never to be used for personal calls for any reason and with the letter from the employer I would have no problem taking a home office and the phone on phone along with other 2106 expenses.

I don't see how this would even have a chance of standing up during an audit. The law is quite clear that the first line that comes into the taxpayer's residence is considered a personal expense. It doesn't matter who pays for that phone. If the business pays for it, then it would have it be included in wages (S/C Corp) since it is a personal expense. For a SMLLC/Ssle Prop., that is a disregarded entity which cannot deduct personal expenses.

I know this is frustrating considering how very few people need home lines for personal reasons, but it is the law. I don't see how this would pass the "more likely than not" test to prevent you from getting hit with preparer penalties.

[ToledoEd]

Can a personal cell phone be considered the first phone line to a home?
In many cases it is the only phone in the home.

[Larmil]

Can a personal cell phone be considered the first phone line to a home?
In many cases it is the only phone in the home.

I don't think you could say it is "provided to the residence".

[Jesse]

If the phone is only used by the TP as a business phone and the internet can be allocated between business and personal then I would deduct it on the 2106. Are you doing an 8829 for this client? Does the client have an office at the employer's site?
I would have TP get a letter from the employer, on letterhead, stating that the work she does at home for the employer is for the employer's convenience and a necessary requirement of her employment. I would keep it in my client file in case any questions are raised by the IRS.

If she hasn't had a home phone for 10 years and got it as a requirement of her job and does not use it for personal calls then I think it could be justified as a business phone. As long as she understands that it is never to be used for personal calls for any reason and with the letter from the employer I would have no problem taking a home office and the phone on phone along with other 2106 expenses.

I respectfully disagree.

I don't see how this would even have a chance of standing up during an audit. The law is quite clear that the first line that comes into the taxpayer's residence is considered a personal expense. It doesn't matter who pays for that phone. If the business pays for it, then it would have it be included in wages (S/C Corp) since it is a personal expense. For a SMLLC/Ssle Prop., that is a disregarded entity which cannot deduct personal expenses.

I know this is frustrating considering how very few people need home lines for personal reasons, but it is the law. I don't see how this would pass the "more likely than not" test to prevent you from getting hit with preparer penalties.

I agree, the first landline is what it is.

Telephone. The basic local telephone service charge, including taxes, for the first telephone line into your home (i.e., landline) is a nondeductible personal expense. 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. Do not include these expenses as a cost of using your home for business. Deduct these charges separately on the appropriate form or schedule. For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home).

http://www.irs.gov/publications/p587/ar02.html#en_US_2011_publink1000226332

[DonPriebe]

Allocating Flat-rate Expenses

... and the internet can be allocated between business and personal ...

Most ISPs that I know of provide internet service at a flat rate per month. Unless you have some internet service that charges you according to your usage, how could you possibly allocate the cost between personal and business? Your incremental cost of using the internet for business is -zero-.

[The same comment applies to most long-distance phone plans. They no longer charge by the call.]

[thomtax]

Just to play devil's advocate and for thought:

If the line used for business is only located in an office dedicated to the business, an argument might be made that the phone is not coming into a residence but is coming into a business office.

Don't have any idea if it would hold up, just throwing it out for thought.

LT