Can I Write Off a New Cell Phone Purchase?

A tax deduction, or write-off, is an expense subtracted from your adjusted gross income, lowering the amount of income subject to tax. For self-employed individuals, deducting the purchase of a new cell phone and its monthly service costs depends on adhering to specific Internal Revenue Service (IRS) rules. This process requires careful record-keeping and an understanding of how to report the expenses on your tax return.

The Business Use Requirement

For a business deduction to be valid, the IRS requires an expense to be both “ordinary and necessary.” An ordinary expense is common and accepted in your type of work, while a necessary expense is one that is helpful and appropriate. A cell phone meets this standard for most businesses, but a complication arises because the device is often used for both business and personal activities, which classifies it as “mixed-use” property.

Because of this mixed-use nature, you cannot deduct the full cost of your phone and service if you also use it for personal reasons. You must first determine the percentage of use that is for business, as this figure governs all subsequent deductions related to the phone. To find this percentage, you must track your usage over a representative period.

You could analyze your phone records for a typical month, categorizing each call as business or personal. Another method involves tracking the amount of time you spend on the phone for work versus personal matters. For data usage, you can review which applications are for business and estimate the data they consume relative to personal apps. Once you have a reasonable method and have calculated a percentage, you will apply this figure to both the phone’s purchase price and the monthly service bills.

Required Documentation and Recordkeeping

Substantiating your cell phone deduction requires documentation, as the IRS can disallow a deduction without proof during an audit. Your record-keeping must be contemporaneous, meaning you record the details at the time the expense or use occurs, not months later.

The first documents you need are the purchase receipt for the new cell phone and copies of every monthly service bill for the tax year. These establish the actual costs incurred.

Beyond these receipts, you must maintain a log to support the business-use percentage you calculated. This can be a spreadsheet, notebook, or digital app. For each business use, you should log the date, the purpose of the call or data usage, and the time spent. This log is your primary evidence to prove how you separated personal from professional use and justifies the percentage you claim.

Deducting the Cost of the Phone

The physical cell phone is considered a business asset, and its cost is handled differently than the monthly service plan. Apply your business-use percentage to the original purchase price to find its “business cost basis.” For example, if a new phone costs $1,000 and your business use is 80%, the business cost basis is $800. The IRS provides two primary methods for deducting this amount.

One option is to take a Section 179 deduction. This allows you to expense the full business portion of the asset’s cost in the year you place it in service. To qualify, the phone must be used more than 50% for business. Using the previous example, you could deduct the entire $800 in the first year.

The alternative method is to recover the cost through depreciation. Under the Modified Accelerated Cost Recovery System (MACRS), business assets are depreciated over a set recovery period. Cell phones are classified as 5-year property, meaning you would deduct a portion of the $800 business cost basis each year over a 5-year schedule. While this results in smaller annual deductions, it spreads the tax benefit over a longer period. Cell phones are not considered “listed property” by the IRS, which means they are not subject to the stricter record-keeping rules that apply to assets like vehicles.

Deducting the Monthly Service Bill

The cost of your monthly cell phone plan is treated as a regular operating expense. The deduction for your service bill relies on the business-use percentage you have documented. You cannot deduct the entire bill unless the phone is used 100% for business.

To determine your deductible amount, total all your monthly service payments for the tax year and multiply this total by your business-use percentage. For example, if your plan costs $100 per month ($1,200 annually) and your business use is 80%, your deductible service expense for the year would be $960.

This calculation should only include the standard, recurring costs of your service plan. Any specific charges directly attributable to a business activity, such as international roaming fees incurred on a business trip, can be deducted in full. These direct business expenses do not need to be allocated, provided you have documentation to prove they were exclusively for business.

How to Report the Deduction

Once you have calculated the deductible amounts, you must report them correctly on your tax return. For self-employed individuals, such as freelancers or independent contractors filing a Schedule C (Form 1040), Profit or Loss from Business, the process is well-defined.

The deduction for your monthly service bill is reported as a utility expense on Line 25 of Schedule C. The deduction for the phone handset itself is handled on a different form. Whether you choose to expense it under Section 179 or depreciate it using MACRS, you must first complete Form 4562, Depreciation and Amortization. The total deduction from Form 4562 is then carried over to Line 13 of Schedule C.

The rules are different for W-2 employees. Following the passage of the Tax Cuts and Jobs Act of 2017 (TCJA), unreimbursed employee expenses are no longer deductible on federal income tax returns for most employees. If you are an employee and use your personal phone for work but are not reimbursed by your employer, you cannot deduct these costs.