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Can I Deduct Business Cell Phones or other Listed Property?

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Question: Can I Deduct Business Cell Phones or other Listed Property?
This article discusses listed property and the ability of a business to deduct expenses associated with purchase and use of listed property for you and your employees for business purposes. Business-provided cell phones are no longer considered listed property by the IRS for tax years after December 31, 2009.
Answer:

The Small Business Jobs Act of 2010 removed employee cell phones and other similar telecommunications equipment from the requirements of "listed property" after December 31, 2009.

The information below relates to other listed property such as computers and employee autos.

Listed property is a specific designation for personal property that can be used for business purposes, such as computers and employee autos. The IRS says that costs associated with use of listed property are not deductible as business expenses unless the taxpayer has sufficient evidence to corroborate:

  • The amount of the expense
  • The use of the property
  • The business purpose of the expense or item
  • The business relationship to the taxpayer of the person(s) using the property (that is, the person must be your employee or contract worker).

The taxpayer must substantiate each element of use separately for each use of business property, specifically

  • The amount of "each separate expenditure with respect to an item of listed property," such as the purchase cost, and
  • the amount of each business use "based on the appropriate measure (that is, time) and the amount of total use of the listed property for the taxable period." In other words, how much of the use was for business and how much for personal.

In addition, you must substantiate

  • Time - the date of the expenditure or use of the listed property item, and
  • Business purpose for the expenditure.

Personal Use vs. Business Use - Who Pays the Tax?
Depending on the purpose of the usage, either you or the employee must pay the tax.

  • If you pay for the property and the use is for a business purpose, the charge is considered by the IRS to be a "fringe benefit." As such, it is not taxable to the employee and it is deductible by you as a business expense.
  • If you pay for the property and the use is for a personal expense, the charge is considered personal. It is not deductible by you as a business expense and it is taxable to the employee. The IRS states specifically: "the fair market value of such usage is includable in the employee's gross income."
Trying to keep track of business and personal use of listed property is difficult, even onerous. Until the IRS figures out some better way to do that, you should continue to keep detailed records of employee use of computers, company-provided autos, and other listed property, if you want to deduct these costs as business expenses.

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