How to Allocate and Deduct Cell Phone Expenses

Cell Phone ExpenseIf you are reading this, chances are you own a cell phone. You may even be reading this article on your cell phone. There is no doubt that cell phones have become a part of everyone’s day-to-day lives. Many new entrepreneurs and small business owners may even start out using their personal cell phone for business. For rideshare drivers, such as Uber and Lyft, without a cell phone there would be no business. It is an absolute requirement – you must either own and use your own phone, or pay to rent a phone.

Cell Phone Expenses Are Deductible

The good news is that at least a portion of your cell phone expenses are deductible. Cell phone expenses are most certainly “ordinary and necessary” business expenses for rideshare drivers (and other business owners).  An additional plus, is that the tax court has ruled that cell phone expenditures do not fall under the broad category of “utilities.” Thus, it is not necessary to maintain a home office, or any office for that matter, to deduct a reasonable portion of your cell phone bill.

What is “Reasonable?”

There is no clear guidance on how to properly allocate your cell phone expenses between business and personal use. However, this step is required in order to determine the deductible amount of your personal cell phone bills. If you have a dedicated business phone, this step does not apply to you – you can take 100% of the expense as a deduction. But for anyone that uses their personal phone, this is not the case. How might you do this…?

Here are a couple of options to consider:

1. Look at how much data your business apps are using vs. the rest of your phone. For example, if you use the Uber app and Google Maps for rideshare driving, and together those eat up about 1 gig of data for your 2 gig data plan – then you can deduct approximately 50% of your cell phone expenses.

2. Try and record how much time you spend on your phone during a typical day for business and for personal use. Track the data for about a week and you should have a pretty good sample size. For example, on the first day you track your time you use your phone about 1 hour a day for personal reasons, and about 3 hours a day doing business “stuff.” You find this to be pretty consistent throughout the week. Thus, you determine that 75% of your cell phone expenses (or 3/4ths of your time) are deductible for business purposes.

These are just a couple options. There are others ways to track your phone usage. Remember the method must be “reasonable.”

Whatever it is you choose, it’s important to note that you should be consistent with your method. Don’t switch month to month to try and get the most favorable outcome. If you later determine that a different method would give you a more accurate allocation method, you can change it. Just don’t do it all the time.

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