Deducting Cell Phone

[Kram BergGold]

At the IRS Tax Forum, the speaker presented the idea that a taxpayer who does not have a land line and only has a cell phone is subject to the restrictions under the first line coming into the house rules. Therefore, in such a situation, if the cell phone plan has no additional charges the business deduction would be zero unless the taxpayer had two numbers using one for business and one for personal. What do you think?.

[DaveO]

I think the cellphone lacks a line.

If a person makes business use of a cell phone they should allocate between business and personal use. The fact they don't have a land line is immaterial. My wife operates a business from our home. I use a cellphone for all my personal calls. I deduct the basic residential line cost from the business phone line and take a tax deduction for the balance. I figure that it's still a land line into a residence even though I pay the business rate. Therefore I treat the "residential" cost as personal. If I were to switch her to a cell I would allocate based on useage.

[taxea]

Deducting Cell Phone

I agree with DaveO...allocate the business/personal use. taxea

[snowbird]

Cell phone are an interesting area ... I have not been able to find an reg, but for landlines there is code

IRC 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.

Note it says "1st telephone line" ... clearly written before cell phones. I have heard varing opinions as to if you only have a cell phone, whether expenses can be allocated. However, I have seen no IRS written statements.

[erchess]

Fundamental Question

When you are faced with two or more alternatives that seem equally likely to be upheld if the return were to be litigated, then do you choose the one most favorable to your client or most favorable to the taxing agency or somewhere in between.. My first tax teacher seriously taught our class to chose the one most favorable to the taxing agency and I think her spirit lives in many of the people on this board. I kick options and good and bad consequences around with my client and try to reach a consensus with them.

[New York Enrolled Agent]

Cell phone are an interesting area ... I

(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.

Note it says "1st telephone line" ... clearly written before cell phones. I have heard varing opinions as to if you only have a cell phone, whether expenses can be allocated. However, I have seen no IRS written statements.

I think your comment "1st telephone line" is quite important. Basically the intention of Congress (and believe me, the Courts look at intention) in enacting §262(b) was to prohibit a deduction for what is inherently a personal expense. Except, in rare poverty situations, all taxpayers have telephones and Congress eliminated a deduction for the first phone line.

Note: DaveO has two phones. Does anyone TRULY believe that it is this easy if you only have ONE phone? Take out your non-deductible landline (let's assume used 40% business) and replace it by a cell phone (likewise used 40% business) and now you have a tax deduction?

From Ritchie TC Summary 2005-181

[start]Petitioner claimed $1,245 of “other” business expenses. The Court presumes that the Verizon Wireless cell phone bills and miscellaneous receipts offered by petitioner were submitted as substantiation for the deduction of “other” business expenses.

Petitioner's cell phone was a personal phone that he also used for business calls. Petitioner testified that he paid a flat rate, regardless of phone usage. Therefore, aside from the personal expense of the phone, which is rendered nondeductible under section 262, he incurred NO ADDITIONAL charge for business use. To the extent he did incur an additional charge for business use, petitioner's evidence fails to meet the substantiation requirements of section 274(d). [end]

Seems to me that the judge's ruling would not allow an allocation for a flat monthly rate. However, just as with a traditional phone bill, "extra" identifiable charges would be allowed. But, since cell phones are listed property, make sure you keep records of usage as per §274(d) and the accompanying regulations. A call log!!!

[snowbird]

NYEA ... thanks for the reference. I had a client that I suggested not take a deduction for cell phone based §262(b) because it was the only phone. Then I had a CPE instructor say that cell phone expenses could be allocate but they were not clear about a cell phone only tax payer. I don't think he understood the question since only about 15% the households are cell phones only. We are one of the 15% since we are snowbirds.

I do not have a 2008 tax quide handy but the 2007 RIA Federal Tax Handbook is silent on cell or mobile phones. What references does The Tax Book have regarding cell phones? (I have already ordered a copy for the 2009 tax season based on the board and what I have seen.)

[Roberts]

Everyone obviously takes a different attitude on this! I would take a percentage of the over all bill and say that's business related. I've had people tell me that is right and people who've told me that's totally wrong.

For example myself. I advertise my cell phone as my tax prep phone number and for a non-tax consulting business. I have a cell phone and my wife has a cell phone. I deduct 50% of the bill as a business expense. That might be wrong but I think it is reasonable.