HBB cell phone write-off dilemma at DVinfo.net

Ervin Farkas · January 18th, 2011, 11:06 PM

I have been with AT&T for way too long, and finally decided to go for an unlimited everything plan and an Android smart phone with the competition. Also, since I just started a home-based business, I would like to pay for it (both initial phone costs and monthly fees) from the business account, to keep finances separate from personal funds.

But! If I buy a family plan, I get some discount. To make things even more complicated, my wife works for a hospital system that has preferential treatment, so if we do the contract on her name, we get another 20 or so percent off.

How do I solve this dilemma?

Thank you,

Andrew Smith · January 19th, 2011, 04:13 AM

Is the combined discount better than the tax advantages? Might be an easy solution there in itself.

Andrew

Ervin Farkas · January 19th, 2011, 05:21 AM

It's not a calculator that I need... that's the easy part.

I am rather looking for a smart accounting/tax guy's advice on how to do it to take advantage of BOTH the discount and the tax write-off.

Andrew Smith · January 19th, 2011, 06:56 AM

Ahh, that makes sense. I don't know that you will find an accountant here (and I certainly am not one) but I would think that as long as you can determine what percentage of the phone was used for business then you should be able to pay that percentage of the bill from the business (and not your taxed personal income).

Andrew

Steve House · January 20th, 2011, 04:25 AM

Quote:

Originally Posted by Ervin Farkas

I...But! If I buy a family plan, I get some discount. To make things even more complicated, my wife works for a hospital system that has preferential treatment, so if we do the contract on her name, we get another 20 or so percent off.

How do I solve this dilemma?,

My accountant says "When in doubt, deduct it. The worse that can happen is IF you are audited and IF it is disallowed, you'll have to pay what you would have paid to begin with if you hadn't deducted it."

Don Bloom · January 20th, 2011, 06:05 AM

Steve,
We must have the same accountant.

Many many years ago, before HBB became "the norm" when I was deducting things for my HBB (I'm talking about the 70s and 80s) I constantly had "talks" with our friendly tax collectors. While most were pretty decent people who simply didn't get "it" some were not and they tried to cause problems for me. I learned to keep exacting records of everything, down to the amount of time I spent in my home based office. I literally clocked in and out.

My how things have changed. There are literally millions of HBBs now and the IRS has not only loosened up about HBB but for the most part understands how they work now.

My accountant has always said the same as Steves BUT keep in mind the $250.00 anniversary dinner you just took your wife out to really shouldn't be considered a "bonus" for your "employee" as the IRS might just question that. It might be a bonus for your wife but writing it off might be problematic.

O|O
\--/

Garrett Low · January 20th, 2011, 01:44 PM

Ervin,

The important thing is to have a record of where the payment went for your company. I have a similar situation. Pay for your entire family plan out of your personal account. Calculate the amount that it would have cost you to have a single cell phone service set up under your business. Not just the amount for the extra line on your personal cell account. Then, each month, write a check to yourself from your business account. That way you have a record of the expense.

-Garrett

Ervin Farkas · January 20th, 2011, 02:49 PM

Thanks guys for putting my anxiety to rest!

As I'm pretty sure you figured it out by now... being brand new to all this home based business world, I am (was, I should say) nervous just thinking about Uncle Sam...

All the info I'm receiving from you is invaluable - thanks again!

Chris Davis · January 22nd, 2011, 09:43 AM

Quote:

Originally Posted by Steve House

My accountant says "When in doubt, deduct it. The worse that can happen is IF you are audited and IF it is disallowed, you'll have to pay what you would have paid to begin with if you hadn't deducted it."

That's the same advice I've received. Every accountant must say that!

Ervin, I'm in the same boat as you - a Sprint family plan with a couple phones for work and the others for wife and kids.

I just deduct a fixed percentage of the bill and "reimburse" myself out of the business account. If I ever get audited, the worst the IRS will do is say "shame-shame" and make me pay some extra tax. Nobody goes to jail for a bad deduction.

Quote:

Originally Posted by Ervin Farkas

I am (was, I should say) nervous just thinking about Uncle Sam...

One thing I've learned being a small business owner since 1982 is that you faithfully report all income. Failure to report income is what puts people in jail. The rest is just math and matters of opionion. Keep all receipts and deduct anything you even have the slightest inkling might be deductible.

Andrew Smith · January 22nd, 2011, 09:45 AM

Quote:

Nobody goes to jail for a bad deduction.

Except for the Mafia? LOL.

Andrew

Jim Andrada · January 24th, 2011, 02:18 AM

I live in the US and all of my clients are in Japan - this has led to some "amusing" discussions with my friendly IRS agent.

Receipts in Japanese - it was very interesting watching him try to read them. He finally agreed that whatever I translated them as must be correct. Numbers with a Yen sign after them were not too hard fir him to understand - unless the numbers were written in Japanese characters and not in the arabic numerals we all love so well.

We had an extended discussion of how to apply conversion rates - he wanted to know why the rate I used was different than the rate the credit card company used. I showed him currency exchange receipts and explained that I always exchanged a few dollars when entering Japan and used this exchange rate for the whole business trip because I had no idea when the credit card company would process the charge.

He agreed because I had demonstrated a reasonable methodology, and this was sort of key - I wasn't just guessing, I had a methodology and records of how I had applied it. This came up several times in several different contexts and in every case, it was the existence of a documented and consistent methodology that worked.

So I think however you decide to handle phone charges is fine, just document it and be consistent with it.

Andrew Smith · January 24th, 2011, 03:36 AM

I suppose the whole thing with "accounting" in the end (fundamentally speaking) is to be able to give account for what you have spent and done? I guess that's what they're looking for and why we keep our receipts.

Andrew

January 18th, 2011, 11:06 PM	#1
Ervin Farkas Inner Circle Join Date: Aug 2005 Location: Atlanta/USA Posts: 2,515	HBB cell phone write-off dilemma I have been with AT&T for way too long, and finally decided to go for an unlimited everything plan and an Android smart phone with the competition. Also, since I just started a home-based business, I would like to pay for it (both initial phone costs and monthly fees) from the business account, to keep finances separate from personal funds. But! If I buy a family plan, I get some discount. To make things even more complicated, my wife works for a hospital system that has preferential treatment, so if we do the contract on her name, we get another 20 or so percent off. How do I solve this dilemma? Thank you, __________________ Ervin Farkas www.AtlantaLegalVideo.com

January 19th, 2011, 05:21 AM	#3
Ervin Farkas Inner Circle Join Date: Aug 2005 Location: Atlanta/USA Posts: 2,515	It's not a calculator that I need... that's the easy part. I am rather looking for a smart accounting/tax guy's advice on how to do it to take advantage of BOTH the discount and the tax write-off. __________________ Ervin Farkas www.AtlantaLegalVideo.com

January 20th, 2011, 06:05 AM	#6
Don Bloom Inner Circle Join Date: Jan 2003 Location: Chicago, IL Posts: 6,609	Steve, We must have the same accountant. Many many years ago, before HBB became "the norm" when I was deducting things for my HBB (I'm talking about the 70s and 80s) I constantly had "talks" with our friendly tax collectors. While most were pretty decent people who simply didn't get "it" some were not and they tried to cause problems for me. I learned to keep exacting records of everything, down to the amount of time I spent in my home based office. I literally clocked in and out. My how things have changed. There are literally millions of HBBs now and the IRS has not only loosened up about HBB but for the most part understands how they work now. My accountant has always said the same as Steves BUT keep in mind the $250.00 anniversary dinner you just took your wife out to really shouldn't be considered a "bonus" for your "employee" as the IRS might just question that. It might be a bonus for your wife but writing it off might be problematic. O\|O \--/ __________________ What do I know? I'm just a video-O-grafer. Don

January 20th, 2011, 01:44 PM	#7
Garrett Low Trustee Join Date: Jul 2007 Location: Novato, CA Posts: 1,774	Ervin, The important thing is to have a record of where the payment went for your company. I have a similar situation. Pay for your entire family plan out of your personal account. Calculate the amount that it would have cost you to have a single cell phone service set up under your business. Not just the amount for the extra line on your personal cell account. Then, each month, write a check to yourself from your business account. That way you have a record of the expense. -Garrett __________________ Garrett Low www.GLowMediaProductions.com

January 20th, 2011, 02:49 PM	#8
Ervin Farkas Inner Circle Join Date: Aug 2005 Location: Atlanta/USA Posts: 2,515	Thanks guys for putting my anxiety to rest! As I'm pretty sure you figured it out by now... being brand new to all this home based business world, I am (was, I should say) nervous just thinking about Uncle Sam... All the info I'm receiving from you is invaluable - thanks again! __________________ Ervin Farkas www.AtlantaLegalVideo.com

January 19th, 2011, 04:13 AM	#2
Andrew Smith Equal Opportunity Offender Join Date: Feb 2009 Location: Brisbane, Australia Posts: 3,065	Is the combined discount better than the tax advantages? Might be an easy solution there in itself. Andrew

January 19th, 2011, 06:56 AM	#4
Andrew Smith Equal Opportunity Offender Join Date: Feb 2009 Location: Brisbane, Australia Posts: 3,065	Ahh, that makes sense. I don't know that you will find an accountant here (and I certainly am not one) but I would think that as long as you can determine what percentage of the phone was used for business then you should be able to pay that percentage of the bill from the business (and not your taxed personal income). Andrew

January 24th, 2011, 02:18 AM	#11
Jim Andrada Inner Circle Join Date: Feb 2007 Location: Tucson AZ Posts: 2,211	I live in the US and all of my clients are in Japan - this has led to some "amusing" discussions with my friendly IRS agent. Receipts in Japanese - it was very interesting watching him try to read them. He finally agreed that whatever I translated them as must be correct. Numbers with a Yen sign after them were not too hard fir him to understand - unless the numbers were written in Japanese characters and not in the arabic numerals we all love so well. We had an extended discussion of how to apply conversion rates - he wanted to know why the rate I used was different than the rate the credit card company used. I showed him currency exchange receipts and explained that I always exchanged a few dollars when entering Japan and used this exchange rate for the whole business trip because I had no idea when the credit card company would process the charge. He agreed because I had demonstrated a reasonable methodology, and this was sort of key - I wasn't just guessing, I had a methodology and records of how I had applied it. This came up several times in several different contexts and in every case, it was the existence of a documented and consistent methodology that worked. So I think however you decide to handle phone charges is fine, just document it and be consistent with it.

January 24th, 2011, 03:36 AM	#12
Andrew Smith Equal Opportunity Offender Join Date: Feb 2009 Location: Brisbane, Australia Posts: 3,065	I suppose the whole thing with "accounting" in the end (fundamentally speaking) is to be able to give account for what you have spent and done? I guess that's what they're looking for and why we keep our receipts. Andrew