The hours you spend preparing your firm's taxes may drop, albeit slightly, courtesy of the latest guidance to come from the IRS.
Until now, cell phones used in business were considered listed property, which is a “specific class of depreciable property that is subject to a special set of tax rules if it is used for business no more than 50 percent of the time…. Listed-property rules limit the amount of deductions and depreciation that can be taken if the asset isn't predominantly used in a business or trade,” according to Investopedia. In general, items found on the “listed property” list are those that easily lend themselves to personal use, such as cars and cell phones.
Today, the IRS issued guidance to clarify and simplify the tax treatment of cell phones. The new rules stem from the Small Business Jobs Act of 2010, which removed cell phones from the items considered listed property and changed the rules so that the use of cell phones could be deducted without extra documentation, as this White House blog post from September 2010 outlines.
According to the IRS' recent guidance, an employer-provided cell phone can be considered a “working condition fringe benefit,” and excluded from income “if there are substantial reasons relating to the employer's business, other than providing compensation to the employee, for providing the employee with a cell phone.” Possible examples include the employer's need to contact the employee at all times regarding work, the employer's requirement that the employee be able to connect with clients when away from the office, and the employee's need to connect with clients outside of normal work hours. The notice is effective for years after December 31, 2009.
The IRS will not require any recordkeeping of business use in order for the cell phone to receive tax-free treatment, this release from the IRS states.
What's more, according to a memo that went to IRS field personnel today, an employee's personal use of an employer-provided cell phone will be considered a “de minimum fringe benefit,” and also excluded from the employee's gross income.
What if your business reimburses employees for any business calls they make on their personal cell phones? Here, the rules seem a little less clear-cut. The memo to field personnel says that examiners should not necessarily assume that that the reimbursement is income, provided several qualifications are met. Among others, the cell phone coverage must be reasonably related to the needs of the business, and the reimbursement not exceed the employee's actual expenses.