Business Cell Phone

Let us see two main issues ,
(1) deduct expenses associated with purchase and use of cell phones for you and your employees for business purposes, and
(2) depreciation of the cost of cell phones. It also discusses the taxes associated with providing cell phones to employees.
Business cell phones are considered "listed property" by the IRS. As such, the IRS says that costs associated with use of such 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 phone call, 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 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 phone, and
  
• Business purpose for the expenditure.

Compare Personal Use vs. Business Use - Who Pays the Tax?
Depending on the purpose of the cell phone usage, either you or the employee pays the tax.

• If you pay for the phone and the phone call is for a business use, 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 phone and the phone call 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 include able in the employee’s gross income."

We are trying to keep track of business and personal use of employee cell phones 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 cell phones, if you want to deduct these costs as business expenses.