Can I write off my phone for business? Can I require workers to use their phone? Reimbursements?

welcome back in this video i'm going over the common question can i deduct my phone costs in my business what about for your employees or your workers or contractors can you provide a phone for them can you or should you be reimbursing your workers if you require them to use their phone for your business i'll be covering all these questions and more in this video and we'll be breaking down the accounting and tax implications and there's been some changes in the tax rules that make it much easier for you to get your qualified phone right off and so if you want to max out that right off be sure to stay tuned for this video but first if you're new here my name is amanda you're watching the business finance coach where i simplify all the technicalities of business and the finances and the money to help you succeed because i truly believe the world needs your business so if that sounds like something you'd like to have in your life consider subscribing to support me now let's jump into can i deduct my cell phone for taxes is it a write-off and what about providing a cell phone to my workers or employees first of all let's talk about two costs that are associated with a cell phone so that you have the background from a tax and accounting perspective so first of all your phone is an asset because it's something that's used in the business to make money so phone facilitates you know the operations of your business unless you sell your phones right if your target if you sell phones a phone company then they're going to be treated differently an asset category is all about intention so with a phone if as long as the intention is facilitating the business you're using it in order to make money in your business it's considered an asset because it's something that would generally last more than a year and assets are treated differently for this exact purpose an asset is tends to be depreciated over time that's the general rule granted with assets that cost less than twenty five hundred dollars there are special rules that we get to write them off as smaller businesses but that's the general concept for an asset which if phone is so that's the initial cost of the device the second part of the cost of a phone is of course the ongoing monthly plan and that's just a regular expense that whoever owns the phone and pays for the service is incurring and when it comes to business use is if that's a business expense then it's just a deductible regular expense of running your business costs incurred to earn income so those are the two costs that are associated with your cell phone next number two let's talk about the two category changes by the irs that have made things much easier for you as a business owner to ultimately deduct phone costs whether you're reimbursing employees providing them with a phone or using your own phone for business number one is that the phone as far as the asset deduction when you purchase it it was part of a category called listed property of assets and that category is about assets that have recreational use you know like pleasurable use to them things like phones laptops and so there are specific rules under listed property that make the record keeping more strict and more involved as far as like when it comes to business calls a record would be required to literally track the the nature of the calls who you're talking to and in much detail about how these calls are business related so one of the major changes was to remove phones from the listed property category of assets the second change is that the irs has categorized personal use of an employer-provided company phone has moved that to the de minimis fringe benefit so in the past if the employer reimburses you for an expense or if you are using company business property and you had personal use you would need to track that and then the company would need to put that into your income on your w-2 so that you would pay taxes on it now all of that is ridiculously cumbersome i think we can all agree and so as part of these changes having taken place the irs has has loosened regulation around this so now let's talk about number three employer provided cell phone so like i just explained in the past if you provided a cell phone to your employees and they used it for personal purposes at all you would have to have a program set up by which they report this personal use to you and then you and compensate them you know include in their pay that they got this benefit so now that that's no longer the case companies are able to provide a company phone for employees and ignore that personal use as a de minimis fringe benefit however to qualify we have some specific criteria so when you provide a company phone to workers to use for business in order for it to qualify for for their personal use to not be accounted for it must be provided for what's called primarily non-compensatory business purposes and what that means is just that you have to have a legitimate business reason for why they need that phone and it can't be because you want to you know make the position more attractive you want it to be convenient for them all of those things are considered pay and you would need to include in their w-2 wages the amount spent on the phone and the phone service because it actually is essentially their pay so to qualify as this primarily non-compensatory business purposes would be a few examples one if you as the employer need to be able to contact your workers on their off time for emergencies that's part of their job description you know that they're able to be available for those types of emergencies and that they need to answer their phone number two if you as the employer or the customers in the business need to be able to contact the workers during off hours or if you or the customers need to be able to contact your workers during regular business hours but due to the nature of the job the workers are not in a one location and so they need to have a cell phone that they can answer so as long as one of those scenarios is met as long as that requirement is met then any personal use that the worker has on that phone doesn't need to be accounted for it's a de minimis fringe benefit now if you're providing a phone in this manner you want to be sure to document that the phone policy meets that criteria and very specifically how but once you do that no more tracking is required of the business and personal usage that doesn't mean that you don't need to keep records you should still keep records and keep any documentation as i always say keep all the paperwork you know keep it all so even if you have statements of monthly phone plans like be sure to keep it all so that you have it if it's ever needed so alternatively number four we're going to talk about reimbursing your workers for using their own phones and sometimes this is called a bring your own device policy byod and this means that you are just making a monthly payment to your workers for the use of their cell phone you know for them using their cell phone and just as we just went over with a company provided cell phone in this scenario if the workers meet that same criteria that we call the primarily non-compensatory business purposes as long as that criteria is met then they don't need to be concerned about personal usage and having to reimburse you for giving them a reimbursement if they had any personal usage the one caveat in this situation is that your reimbursements can't be more than what they actually spent which is an interesting you know caveat because that might be a little difficult to know but there are reasonable estimates out there you know 30 to 50 a month is the average cost of cell phone service and you can do some basic googling to find those numbers and document whatever number your company decides to use or ask someone like an accountant to help you you know come up with that number for your situation and one other thing to note here is that actually under state law for california if you are requiring workers to use their devices use their phones you're actually required to compensate them as well california was the only state i saw you know going over this as far as the labor laws but it's something to look into for your state as well to see if your state has any specifics when it comes to federal labor laws there are no requirements in this area even if you require someone to use their phone lastly we're at number five what if you're a business owner then what happens do i how do i get to write off my phone so as always when it comes to taxes it's going to depend first of all on what type of business you have but let's just start with the general rule when it comes to business owners having personal assets and then taking a business deduction so personal use is never allowed as a deduction for business owners however if you have an asset that is owned personally then you can take a business deduction by tracking your usage of that asset and allocating a portion to the business and then you get to take a deduction for that how would you do that well with a phone you would print out all of your phone calls label the business calls label what the purpose was and calculate the total time of business compared to the total time of personal and then allocate that percentage of your phone bill to the business expense now when it comes to the accounting and tax world this is actually what they are still recommending for business owners to do and quite frankly i don't agree with that i think that this rule change very much applies to business owners as well certainly if you are taxed as a c corp or an s corp then as an owner you're required to be paid as an employee and therefore the policies and the two options we previously discussed apply to you just the same you know as an owner employee you're no different than any other employee and so therefore the only people we have left is self-employed partnerships which could include llc's as well and so even in those scenarios i am willing to say that as long as you document that you are actually having a substantial business purpose for having the phone and you document that you make sure that number two your reimbursements don't exceed the total cost you're actually paying and you're not trying to you know manipulate the system you're genuinely trying to just pay a regular reasonable cost of a phone bill and the phone service then i believe that that is fully deductible under these changes so with you as a business owner if you have a personal phone and you're self-employed then you know you don't need to worry about that because you're self-employed the business isn't separate so you can just take that deduction because it's business related when you get into a separate business like an llc partnership then if you have a personal cell phone you should reimburse yourself for the costs alternatively the business could purchase the cell phone and pay the service as well from the business and then you wouldn't have to include that in income it would just be a deduction so this might not be the most popular view out there like i said a lot of professionals and a lot of the tax literature is still recommending that people estimate a percentage of their phone usage and that's certainly something you should do if you don't meet the criteria that we've discussed a few times about having a real business reason for needing your phone however most people do have that reason you know if you use your phone in your business and you have a local business where you take phone calls then you're going to meet that criteria and i think it's very reasonable for you to not be estimating a percentage that's used for business since estimates really have nothing to do with taxes you know in general taxes need to be documented and the actual numbers are always used so that's how i apply these changes for employee and worker phones to business owners as well that's all thanks for watching do let me know if you have any questions in the comments down below i give away a free business spreadsheet template to help you get started with your accounting and taxes it has a basic worksheet for organizing your accounting calculating quarterly taxes and taking those accounting numbers and putting them into the tax totals at the end of the year you can get that absolutely free just click on the link next to the spreadsheet picture or check out the description below this video i also have other courses and programs to help people with their accounting and taxes personal finance all of the money related aspects um and you can find out more about those in the description below this video too otherwise if you're new here consider subscribing or checking out some of my other videos that are around and please do give this video a like if you enjoyed it to let youtube know and share it with anyone who you think might need it otherwise i'll see you next time bye

Channel: Business Finance Coach

Views: 5,543

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Id: QKTvyCDgpfU

Length: 15min 31sec (931 seconds)

Published: Fri Apr 09 2021