Cellphones as a Tax Write-off
Want a little-known tip for saving on your taxes? Try writing off the cost of your cellphone, iPhone, or BlackBerry as a business expense.
That's something that many small businesses and entrepreneurs would probably love to do. A September 2007 survey of 1,000 small-business owners by AT&T found that 42 percent are so dependent on wireless technology that they say survival without it would be a "major challenge." More than half add they expect to depend on it even more in the next two years.
But there's some bad news about that tax deduction: The federal tax code says that businesspeople can write off only the parts of their wireless bills that are related to business purposes.
How do you figure that out? Count up all the calls you've made from your cellphone and all the E-mails you've sent from your BlackBerry. What percentage of those calls and E-mails were related to your job alone, and not communications with your family or friends? That's the share of your phone bill that you can write off. And it's the case regardless of whether you are an employee with a company-provided phone or you're self-employed using your own phone for business.
This requirement has ticked off several politicians on Capitol Hill who believe it's an unrealistic and burdensome requirement in a digital age. Reps. Sam Johnson, a Texas Republican, and Earl Pomeroy, a North Dakota Democrat, introduced a House bill last month that would allow the business use of any cellphone or wireless device to be deducted from one's taxes, regardless of how often it is used for personal reasons. Democrats John Kerry of Massachusetts and John Ensign of Nevada introduced a similar measure in the Senate.
Kathleen Black, an aide to Johnson, said she found out about this part of the federal tax code after receiving complaints from constituents who have been audited by the IRS after trying to write off their wireless expenses. "I received a letter from a constituent," Black recalls. "I looked at it and said, 'This is the dumbest thing I've ever heard.' " She says that unless they can produce a log of all their electronic communications, taxpayers can't get past an audit.
This requirement in the tax code stems from a law Congress passed in 1989, when cellphones were rare and BlackBerrys and the like were unknown. Today, cellphones have been a business staple for some time, and specialized wireless devices are found more and more often on the hips of small-business people and not just of Manhattan stockbrokers.
Craig Mathias, wireless industry analyst and founder of the Farpoint Group, says that service-oriented small businesses are at a big disadvantage if they don't use mobile devices to have information at their fingertips. "Nobody likes waiting," Mathias explains. If you're meeting with a client and can't call up the needed numbers immediately, for example, you're behind the curve.
One small-business person who has used wireless technology to his advantage is Marc Bressman, who runs his own company, Falcon Computer Consulting, in Livingston, N.J. "I almost consider my wireless device a laptop replacement," he says. When he's traveling to clients' offices to help with computer problems, he can use his Palm Treo to access his list of contacts with phone numbers and addresses stored in his E-mail account.
The availability of hosting services has made wireless technology easier for small businesses to use despite their tax treatment. These services overcome a problem for many small businesses and self-employed people: They don't have the time or money to get E-mail exchange servers to store all the calendars, contacts, E-mails, and files that need to be synced with a wireless device. Large corporations can afford to set up those servers themselves. Bressman says that using an exchange-hosting service gives him the same capability at less cost than doing it himself. Bressman uses a service called ShareWeb; others include 4smartphone and MailStreet.
So would Bressman ever consider recording all of the business E-mails and calls he makes to try to write his wireless bill off his taxes? "It would take so much time to keep a log that it would defeat the purpose of any savings you'd be making," he says.
It seems likely that, for now, most American entrepreneurs will have to bear the full cost of their increasing reliance on wireless technology. Black says that the legislation changing the 1989 law could find its way into a larger tax bill at the end of the spring. But for this tax season, at least there will be one less form to fill out.
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