Mobile communication is increasingly becoming an important aspect of everyday business operations. Wireless and mobile platforms help all employees -- from desk-bound workers to the mobile workforce -- remain in constant communication, ensuring that none of them is out of the loop.
However, as much as mobile communication drives business, the monthly cell phone bill can add up to obscene amounts. The same goes for internet service, software, and all other sophisticated gadgets that enable smooth mobile communication.
So, when the opportunity to claim a cell phone bill tax deduction presents itself, grab it. With cell phones, laptops, iPads, and the Internet gradually becoming necessary equipment for running businesses, the Internal Revenue Services now makes it possible for you to deduct the cost of some of these items used for business (in fact, we recommend you use an organizer for tax receipts to do everything for you). Be aware, though, that the IRS’s standard for a legitimate deduction is that the item is a usual, necessary, customary, and reasonable expense for your type of work.
Independent contractors, compared to the traditional W-2 employees, have more tax deductions available to them. This is because they can deduct business expenses that were incurred and not reimbursed and a cell phone bill is one of those expenses.
They--the business owners, self-employed workers, and contractors who use cell phones entirely for business-- can write off the entire cost of equipment and service charges as a business expense.
For employees whom the employer provides cell phones for business use, their use of the cell phone, both for their business and personal use, is a non-taxable fringe benefit. More importantly, you will not need to keep records of business purposes to receive this tax-free treatment.
The IRS clearly states that an employer-provided mobile phone is a fringe benefit to the employee, and its value, including both the monthly charges for using it and its initial cost, is taxable to the employee. This is unless it can be proven that the phone is used primarily for business purposes.
This tax-free treatment is only available if the employer provides the phone for non-compensatory business purposes i.e. you have substantial business reasons for providing the employee with a cell phone. Some of the reasons for providing a cell phone to an employee include:
You should note that if the cell phone is provided to the employee to promote morale or goodwill, or as a means of furnishing additional compensation to the employee, and it is basically not provided primarily for non-compensatory business purposes, then, in this case, the value of the cell phone should be included in the employee's income as a taxable fringe benefit.
If your employer requires an employee to use their personal cell phone for business calls and emails, it is considered an unreimbursed employee expense. And, under the new Tax Cuts and Jobs Act, these expenses are no longer deductible except for:
However, not all employees in this category can deduct their cell phones. Find out if you qualify for this business expense from a reliable tax advisor.
As most small businesses cannot afford, and therefore do not provide a cell phone to their employees, more often than not, a small business owner will provide reimbursement or a cash allowance for the employees' work-related use of their personal cell phone.
The IRS in turn recognizes this administrative approach and considers the reimbursements of the employees' expenses for reasonable cell phone coverage to be non-taxable.
Big companies on the other hand come up with elaborate reimbursement policies that ensure that they comply with their existing expense policies.
The company’s cell phone policy plays a role in creating a reimbursement policy. The company may adopt one or a combination of these cell phone policies to see which works best for them.
The policies are:
In this plan, the company is responsible for purchasing both the cell phone and the service plan for the employee. It is considered a working fringe benefit if the phone is used for business and for personal use, it comes under the de minimis fringe benefit.
In this policy, the employee has their own mobile phone that they use for business as well. The expense is not included in their Form W-2 if they buy the device themselves. They can, however, take an itemized deduction, which is limited to 2 percent of their adjusted gross income, on their income tax.
Falling under the non-accountable plan, this policy requires the employer to provide a monthly allowance to the employee to buy a phone and a service plan. The employer must record the allowance in W-2. The employer can then consider it for employment tax withholding and income tax.
In this policy, the employee is allowed to purchase a mobile device along with the service plan from a list of company-approved devices. The company will then reimburse the initial cost of the cellphone and subsequent service plan fees every month after receiving the associate receipts of course.
The choice of policy is influenced by various factors such as ease of use, cost of acquisition and service plan, etc. As such only one policy may not work best with their existing expense policies stipulations.
Business owners qualify for a cell phone tax deduction from charges that they incur when they use the mobile phone exclusively for business-related purposes. If you use a personal cellphone for business, then the regular monthly expense does not qualify as a full deduction. For you to deduct it as a business expense, you will have to calculate the business-use percentage of the mobile phone on a month-by-month basis.
To avoid even more complications, try not to use your cellphone as your primary residential phone. Having a separate phone for work and another for home is even better. As stated above, in most cases, cellphones are only partially deductible because of personal use. But if you have a separate phone bill and cellphone plan for business only, then you can claim a 100 percent deduction.
Ideally, the IRS does not have an exact rule that applies to how to calculate your business use, so use your best judgment. For example, if you use your personal mobile phone for business as well, you can only claim the portion of your phone use that is work-related. You’ll have to calculate the business use percentage and then multiply that by your actual cell phone expense. You also need to prove usage by keeping records of those costs.
So, if you use your cell phone for business, the regular monthly expense does not qualify as a deduction. To deduct this expense, you must calculate the business-use percentage of the mobile phone on a month-by-month basis.
You will need:
Having an itemized monthly statement makes it easier for you to look back at the minutes and numbers called for business-related purposes. And if you don’t have the itemized statement, don’t fret, you are allowed to make an estimate of your business expenses. A reasonable one at that.
If you are looking for an easy way to track cell phone tax deductions, try Bonsai's expense tracker for self-employed workers. We automatically scan your bank and credit card receipts, organize your write-offs and help you maximize your tax deductions.
Numerous IRS forms are used for different deductions. This could be a little confusing especially if your work situation has recently changed. If you find yourself in such a situation, the best course of action is to work with a professional CPA to help you out.
But, if you want to go at it solo, there are two distinct forms that you must fill out. They are :
When thinking of deductions you can make, don't forget your cell phone bill expenses and internet service. Deducting these phone expenses along with other 1099 tax deductions can help offset income from self-employment, freelancing, and other side gigs. Be sure to follow the rules on this particular deduction so that you can avoid scrutiny from the IRS.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?