Can I Deduct My Phone Bill as a Business Expense?

A phone bill can be a significant expense for businesses. Many phone-related costs may be eligible for tax deduction, reducing overall taxable income. This guide details the criteria for deducting phone bills, how to determine the deductible portion, the necessary records, and proper reporting procedures.

Qualifying for the Deduction

To qualify as a business deduction, a phone expense must be “ordinary and necessary” for your trade or business. An ordinary expense is common and accepted in your industry, while a necessary expense is helpful and appropriate for your business. This means the expense contributes to the development and maintenance of your business. For instance, a phone used for client communications, scheduling, or marketing generally meets these criteria.

This deduction primarily applies to self-employed individuals, independent contractors, and small business owners. If you are a W-2 employee, unreimbursed employee business expenses, including phone costs, are generally not deductible under current federal tax law.

A clear distinction between personal and business use is required. While a dedicated business phone line is 100% deductible, a personal phone used for business purposes requires careful apportionment. If you use a single phone for both business and personal calls, only the portion directly attributable to business activities is deductible. Claiming 100% business use for a single personal phone can raise red flags with tax authorities, as some personal use is typically expected.

Determining the Deductible Portion

Only the business portion of your phone bill is deductible if the phone is also used for personal reasons. This requires calculating the percentage of your phone usage that is work-related. For example, if your phone bill is $100 per month and 60% of your usage is for business, you can deduct $60. This same percentage applies to the cost of the phone itself, accessories, and any additional charges incurred during business travel.

One common method for calculating the deductible portion involves tracking usage over a representative period, such as a month. This can involve reviewing detailed billing statements to identify business calls, texts, and data usage. If detailed tracking is impractical, you can estimate a reasonable percentage based on typical usage patterns. For instance, you might determine the number of hours spent on business calls compared to total waking hours.

If you have a family phone plan, you can still deduct the business portion of your individual phone’s cost. Obtaining an itemized bill can help differentiate your individual charges from those of other family members. After identifying your individual phone’s cost, apply your business-use percentage to that amount.

Maintaining Proper Records

Accurate and thorough recordkeeping is fundamental for substantiating any business deduction, including phone expenses. You need to maintain records that clearly show how your phone supports your business and how you calculated the deductible percentage. These records should include monthly phone bills, detailed call logs if you track usage call-by-call, and notes that differentiate between business and personal usage.

The Internal Revenue Service (IRS) generally requires taxpayers to keep records for at least three years from the date they filed their tax return, or two years from the date the tax was paid, whichever is later. Supporting documents like invoices, receipts, and bank statements are also crucial for all business expenses. For amounts exceeding $75, the IRS generally requires a written record, which could include a log, spreadsheet, or diary detailing the payment amount, business reason, and date. Contemporaneous recordkeeping, meaning recording the information at or near the time of the expense, is also highly recommended.

Reporting the Expense

Once the deductible portion of your phone bill has been accurately determined and supported by proper records, the next step is to report it on your tax return. For self-employed individuals, including sole proprietors and independent contractors, this expense is typically reported on Schedule C (Form 1040), Profit or Loss from Business.

On Schedule C, the deductible phone expense can often be listed under “Utilities” or “Office expenses,” among other ordinary and necessary business expenses. This form is used to calculate your business’s net profit or loss, which then transfers to your personal tax return, reducing your overall taxable income. Partnerships and corporations generally include phone expenses as part of their ordinary business expenses on their respective business tax forms.