For many American citizens, a cell phone is not only used to keep in touch with family and friends but also for work. It helps maintain an LLC company, monitor news, and provide professional communication.
Since business incorporation, every business owner has probably used a personal cell phone for work-related purposes. This can be grounds for a deduction for some of your income. All you have to do is apply for a tax deduction for your phone expenses.
Cell phones are among the equipment approved by the IRS for deductible business expenses. Therefore, if you use it for your business purposes, you can probably deduct its maintenance costs and even its purchase price. However, for your application to be approved, you need to meet some requirements.
In this article, we'll take a look at what a tax deduction is and analyze the conditions that will allow you to get one for your phone bills after business formation. In addition, we will discuss the documentation that the IRS will require and how to prepare it.
Does LLC Formation Help Offset the Cell Phone Expenses?
One of the benefits of an LLC incorporation is the ability to refund some money you spend on your business in the form of a tax deduction. Simply put, a tax deduction is an amount you can deduct from your income to reduce your taxes.
The IRS has a clear list of commercial expenses that are eligible for a tax deduction. One of them is cell phone expenses. If you use it for day-to-day company matters after a business formation, you can save up to several hundred dollars a year with a tax deduction.
However, when planning to start a business on your own or hiring one of the LLC formation services(here lawyer D.Kondratiev reviews LLC formation companies and helps to choose the best one), it is essential to pay attention to the details.
So, to assess the chances of an LLC company successfully claiming a tax deduction for cell phone expenses, you need to understand the specifics of your chosen field of business activity. For example, if you work as a driver for an organization such as Uber or Lyft, which provides ride-hailing services, it is quite obvious that phone expenses will be an integral part of your work. Otherwise, it's impossible to access the app and keep your workflow running smoothly. On the other hand, if you work as a house painter and make only a few business calls a year, then your attempt to deduct your cell phone expenses may attract the attention of the IRS.
Can I Deduct 100% of My Cell Phone Bills With the LLC Formation?
Well, you've used one of the best LLC services or handled the online LLC formation on your own and are ready to get down to business. However, even after the business incorporation, most entrepreneurs use their cell phones for both personal and corporate purposes. As a result, the bill is usually only partially deductible.
Of course, after the LLC formation, you have the right to purchase a separate cell phone for your company's needs. In this case, the tax deduction will be 100%. However, the maintenance costs of the additional mobile phone will most often be higher than the amount of the deduction, which makes this option ineffective.
Let's look at an example of how an LLC company owner can calculate an approximate percentage and amount of tax deduction for cell phone expenses.
If you use your personal phone for business calls every weekday from 9 a.m. to 5 p.m., that's a total of 40 hours a week. At the same time, you are awake, for example, from 8 a.m. to 10 p.m., that is 14 hours a day. When we multiply 14 hours a day by 7 days a week, we will get 168 hours. If we divide the 40 working hours by the total time you are awake (that is 168 hours), we can see the ratio of business to personal cell phone use. It is 24% to 76%. With a monthly phone bill of $100, you can claim a tax deduction of $24 per month or $288 per year.
Personal cell phone use is not treated as business expenses and cannot be deducted. Therefore, to avoid any problems with the IRS, you should have proof that the calls are primarily made to keep the LLC company running and are of a business nature.
How To Keep the Personal Use of the Mobile Phone Separate From the Costs Associated With the LLC Formation And Its Maintenance?
Although you are eligible for a tax deduction after your business formation, not all cell phone calls fall under the legal requirements. To get your application approved, you need to distinguish between your personal and business calls. More often than not, their ratio varies from week to week, so you have to keep track of the time you spend. You can either take notes yourself or request a detailed bill for your phone calls.
In addition, according to the IRS guidelines, the owner of an LLC company has to specify the methodology for cost-sharing of paying a telephone bill: personal and corporate.
What Documentation Do I Need to Offset My Cell Phone Expenses?
To apply for a tax deduction, you should collect and keep the documentation associated with the LLC incorporation from the very beginning. It includes the following:
Proof that you have paid your own cell phone bills every month. This information can be found on the bill or bank statement;
Scheme for calculating the ratio of business to personal phone expenses.
This may seem confusing, but in practice, it's easy to collect the paperwork. It's enough to get and print out a bill for the cell phone you used on behalf of the LLC company and append the necessary calculations to it. Moreover, it will also be worthwhile to make a digital copy of the documents. This is a good safeguard in case the paper copy is lost or damaged.
Cell phones are an indispensable element of modern life. It's hard to imagine an entrepreneur giving up the freedom and comfort of mobile phone advantages. Taking this into account, the IRS has added cell phone expenses to the list of deductible expenses.
At the same time, people often use phones for their personal purposes, however, so the decision to deduct is always made only after all the circumstances have been considered.
We hope this article about the LLC company has helped you find the answers to all your questions, and now you are ready to pay your taxes. If you still have any doubts, you should consult with a professional lawyer or accountant. For example, MyCompanyWorks, one of the LLC formation services in the industry, provides a Free Business Tax Consultation when you purchase any of its service packages. By hiring this professional service for online LLC formation, you will also have access to a wide range of valuable and high-quality services to make your company's work easier.