Navigating the deductible expenses for your business can get a little murky for parents. Some expenses, like advertising and legal services, are crystal clear, but sometimes lines get blurred — especially for self employed parents. For example, it’s hard to keep track of your business mileage when you have to pick up your kids from soccer practice in the middle of an afternoon of professional errands, and your home office supply closet probably gets raided every time a school project is assigned. Perhaps the murkiest area of all for a self-employed parent is cell phone usage. Here’s how to navigate the confusion.
On the surface, it’s very simple. If you carry a separate phone that you use only for business, you can deduct 100% of the expenses related to that phone. But carrying two phones and always reaching for the right one is not simple in practice, so most self-employed people prefer to use just one mobile device and leverage some money saving tips.
If carrying a single device is your solution, you need to calculate what percentage of your overall phone use is for business. The accepted practice is to go through your calling records and see how much of your phone time is spent on business calls. If you use your phone for business 25 percent of the time, then you can deduct 25 percent of your phone-related expenses. However, even once you’ve come up with a ratio of business to personal use, there may be other factors to consider.
Most families today use group plans, like the family cell phone plans from T-Mobile, to get the best deals. If you use such a plan, you’ll need to calculate how much of the bill belongs to you personally and then apply your business percentage to get a deductible figure. Since every family plan is priced differently, there isn’t a simple formula for this. For instance, if your family has four lines that all share minutes and data but you’re using half of the total shared minutes for your phone, do you apply your business percentage to 25 or 50 percent of the total bill? What if your plan charges a base price for the first line and a lower price for each add-on? Do you divide the bill evenly or apply the business-use percentage to the cost of that first line? In a situation this complicated, it’s best to bring all the information to your tax preparer.
Another factor that can complicate your tax life is a service bundle in which your phone, cable, and internet services are all packaged together for one price rather than being billed separately. One rule of thumb is to simply divide the bill evenly by the number of services — so if your bundle includes internet, cable, and phone, you would divide by three to get your overall phone expense and then apply the business-use percentage to the portion of your phone expense.
Don’t forget that your phone costs could be more than your monthly bill. If you’ve had to pay for repairs, like a broken screen, you can apply your business percent to that expense. If you’ve bought accessories, such as a Bluetooth headset or a dash mount, that you use exclusively for business, you can deduct the whole cost. If you carry an expensive smartphone, talk to your tax advisor about depreciation too.
As always, good record keeping will protect you in the case of an audit and help your tax preparer find the largest possible deductions for you. In the case of your phone, you’ll need to keep copies of your monthly bills and receipts for any repairs or accessories. You should also download the usage logs that support your business-use calculations and either print them out or back them up carefully to support your family business tax.
Calculating the percentage of your phone use for business is complicated, but if you spend a lot on cell phone bills, it’s worth your time. If you find the process frustrating or don’t feel like you’re getting as much of a deduction as you should, consider adding a separate business phone line next year.
Image from https://www.flickr.com/photos/randykashka/5239809977/sizes/z/