The Internal Revenue Service is a little picky when it comes to tax deductions for phones – both landlines and cells. The IRS operates on the theory that if you have a phone in your possession, the likelihood that you will never use it to make a personal call is really pretty negligible. Before 2010, the IRS made it difficult to claim cell phone business deductions for this reason. The Small Business Jobs Act of 2010 made claiming such a deduction a little easier, but certain rules still apply.
Business Vs. Personal Use
Business use of your phone is tax deductible – but only business use. You can't use your phone to make a few work-related calls each day then write off your entire bill for the month. If 60 percent of your calls are business-related, you can deduct 60 percent of your cell bill for that month. It doesn't matter if you're not self-employed. If you have to use your personal phone in order to perform work for your employer, you can still claim the deduction by segregating the percentage of time you use your phone for work – provided your employer doesn't reimburse you. If you're employed by someone else, your work-related calls must also be reasonable and necessary to performing your job.
The IRS also allows you to depreciate the cost of your phone, but this probably won't result in a significant tax deduction. If you buy a fancy new smartphone for $650, the depreciation deduction doesn't shave $650 off your taxable income. You must depreciate the purchase price over a period of seven years. This doesn't mean that you get to divide the $650 by seven and take a $92 deduction each year. Depreciation is a somewhat complicated formula based on your phone's gradual loss of value due to repeated use.
As with everything involving the IRS, you can't just take an educated guess at how often you use your phone for business. If you're planning to take the deduction, it's a good idea to download your usage report from your service provider each month and literally add up the minutes you spent on work-related numbers as opposed to personal calls you made or received. If 185 of your 500 minutes were for business, you can deduct 37 percent of that month's bill – and if you save the reports, you've got acceptable proof for the IRS.
Unfortunately, if you're not self-employed, claiming the deduction for business use of your cell phone might be more trouble than it's worth. You have to itemize on your taxes, which means giving up the standard deduction for your filing status in that tax year. Phone use is a miscellaneous deduction so you can only claim the portion that exceeds 2 percent of your adjusted gross income. For example, if your AGI is $75,000, you'd need more than $1,500 in phone use and depreciation before you could claim the deduction. If your total costs are $1,700 for the year, your deduction is only $200. Other work-related expenses count as miscellaneous deductions too, however, so you can add them in to reach this 2 percent threshold. If you're self-employed, no such rules apply. You can claim the deduction on your Schedule C, Profit or Loss From Business.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.