Can I Pay My Cell Phone Bill With My Business Account?
Understand the accounting methods and tax rules for paying a cell phone bill with business funds to ensure proper compliance and a valid deduction.
Paying a personal cell phone bill with a business account is a frequent query for entrepreneurs. The answer is yes, but it is conditional upon adhering to specific Internal Revenue Service (IRS) regulations. The process requires a clear and defensible separation between the business and personal use of the device to benefit from a legitimate business deduction.
Determining the Business-Use Portion of Your Cell Phone Bill
The first step is to calculate the portion of your cell phone bill that is directly attributable to your business. The IRS requires that only the business-use percentage of your monthly bill can be treated as a deductible expense. A common approach is to analyze your usage over a representative period, like one to three months, to determine a consistent average by reviewing itemized bills.
Business use generally includes calls made to clients, vendors, or partners; data used for work-related email, navigation to job sites, or business-specific applications; and text messages for business communications. Personal use encompasses activities like calling family and friends, browsing personal social media, or streaming entertainment. For example, if your total monthly bill is $100 and you calculate that 60% of your calls, texts, and data were for business purposes, then $60 is the amount you can consider a business expense.
This calculation should be documented in a log or worksheet, as simply estimating a percentage is not sufficient for IRS purposes. For business owners who prefer to avoid this calculation, obtaining a second phone used exclusively for business allows for a 100% deduction of its costs, simplifying the process considerably.
Methods for Paying the Expense
After you have determined the dollar amount of your business-related cell phone use, you must choose a proper payment method. One common approach is to pay the entire bill from your personal bank account and then have your business reimburse you for the business-use amount. The reimbursement should be documented in your business’s financial records.
An alternative method involves paying the full cell phone bill directly from your business bank account. If you choose this route, you must immediately repay the business for the personal-use portion of the bill. This repayment is recorded as an owner’s contribution or, in the case of a sole proprietorship, reduces the owner’s draw.
The structure of your business can influence the formality required for these transactions. For S corporations and C corporations, these reimbursements should be managed through an accountable plan. An accountable plan is a formal policy that outlines how the company will reimburse employees for business expenses. This plan requires employees to substantiate their expenses and return any excess reimbursement in a timely manner, adding a layer of documentation that is good practice for all business types but more formally expected for corporations.
Record-Keeping and Tax Reporting Requirements
Reliable record-keeping is necessary to substantiate your cell phone deduction. The record-keeping burden is less strict than in the past, as cell phones are no longer considered “listed property” by the IRS. You must still retain copies of your monthly cell phone bills for the periods you are claiming the expense, alongside the log or worksheet you used to determine your business-use percentage.
Proof of payment is also necessary. If the business reimbursed you, keep copies of the canceled check, bank transfer confirmation, or payroll record. If you paid from the business account and repaid the personal portion, you need records of both the initial bill payment and your subsequent contribution back to the business.
When it comes time to file your taxes, the location for reporting this expense depends on your business entity. For a sole proprietor or single-member LLC, the deductible portion of your cell phone bill is reported on Schedule C (Form 1040), Profit or Loss from Business. Because IRS rules generally prohibit deducting the base rate of the first phone line into your home, the business portion of a mixed-use cell phone bill is listed in Part V, “Other Expenses,” rather than under the “Utilities” line. For corporations, the expense is reported on Form 1120 or Form 1120-S on the corresponding “Utilities” or other deductions line.