Is My Telephone Tax Deductible?
The answer should be simple for family child care providers. You need a telephone to operate your business and therefore it should be deductible as an "ordinary and necessary" business expense.
Not so fast.
IRS rules clearly state: "The cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even though you have an office in your home is not deductible." (See IRS Publication 535 Business Expenses)
There was a time when the first telephone was tax deductible, but Congress passed a law in 1988 taking away this deduction.
Some child care providers have argued that since child care licensing rules require that they have a telephone, it should be deductible. I once tried to help a child care provider in Minnesota who didn't have a telephone until she was required to get one to become licensed. The IRS told us clearly that she couldn't deduct it.
So, the first phone line into your home, whether it's a land line or a cell phone, is not deductible. You can, however, deduct the business portion of expenses associated with this first phone: business long distance calls, caller id, an answering machine, and the cost of the phone.
Second phone line
If you have a second (or third) phone line into your home, you can deduct the business portion of these lines. The phone lines can be land lines or cell phones.
If you use a second phone line exclusively for your business you can deduct 100% of the cost. If you use it for business and personal purposes, you can use your Time-Space Percentage to determine the business portion. Actually, a more accurate measure of the business use of your second phone line might be your Time Percent.
Note: Under an old law, taxpayers had to track the actual use of their business telephones. But, this requirement was eliminated under the Small Business Jobs Act of 2010.
If your telephone, internet, and cable television bill is bundled together in one bill, how do you break out the cost of your second telephone line?
If your cable company won't break out the cost of the telephone lines, divide the total bill by three. Then divide the third of the bill that represents the telephone lines by the number of phone lines. Then deduct the business portion of the second or third line you use for your business. If your bill tracks the minutes used on each phone line, determine your business use based on the percentage of business minutes used.
As is too often the case with tax laws, what starts out as a simple question has a complicated answer.
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