Generally, yes. If you run a business in the US, the part of your phone bill that is used for business is an ordinary business expense you can usually deduct, and a phone used only for the business can be deducted in full. If one phone covers both work and personal use, you deduct the business share, such as 70 percent of a $90 bill. The share has to be reasonable and backed by records. This is general information, not tax advice; confirm with an accountant, because the rules depend on how your business is set up.

The short answer

Three situations cover most small businesses:

  • A phone and plan used only for the business: deductible in full, along with the cost of the device itself (which may be deducted or depreciated, depending on its cost and your tax setup).
  • A personal phone also used for the business: the business-use percentage is deductible.
  • An employee's phone that you reimburse: the reimbursement is a business expense for you and, under the right setup, not taxable income to them.

The IRS's general guide to deductible expenses is Publication 535, Business Expenses. It says ordinary and necessary costs of running your trade or business are deductible, and that expenses with both business and personal use must be split.

How the business-use share works

You pick a percentage that reflects how much of the phone's use is for work, and you keep a record of how you got it. There is no single required method. Common ones: count calls and messages for a typical month and divide the work ones by the total; use a sample of two or three weeks; or use your call log, which shows which numbers are customers. What matters is that the number is believable. A claim of 100 percent on a phone that also has your family plan and personal apps tends to draw questions. Under current federal rules cell phones are no longer in the special "listed property" category, so you don't need the detailed usage log that vehicles require, but you still need to be able to support the percentage. Ask your accountant how your records should look.

A worked example with a $90 bill

Say Rosa runs a small tile-installation business and uses one phone for everything. Her monthly bill is $90.

  1. She tracks one typical month: 210 calls and texts, 147 with customers, suppliers or her crew, 63 personal.
  2. 147 divided by 210 is 70 percent for the business.
  3. 70 percent of $90 is $63 a month.
  4. Over a year: $63 x 12 = $756 of phone expense.

If Rosa's marginal tax rate is a combined 25 percent (income and self-employment tax), the deduction reduces her tax by roughly $189. That's an illustration; your rate will differ. If she moved the business to a separate line at $40 a month, 100 percent business, the expense is $480 a year with no percentage to defend, and her personal plan can drop in price.

Records that hold up

  • Keep each month's bill as a PDF in a folder labeled with the year. Carriers delete old bills online.
  • Keep the one-page calculation: the month you sampled, the count of business and personal calls, the percentage and the date you worked it out.
  • Redo the sample once a year, or whenever your use changes a lot.
  • Pay the bill from the account you use for the business if you can, so the entry in your books matches a payment.
  • Record the phone purchase, the receipt and the date.

This costs about 15 minutes a year. It is the difference between a deduction and an argument.

Employee phones and reimbursement

If staff use their own phones for work, you can pay a monthly stipend or reimburse the business share. The tax treatment depends on how you set it up; a written policy that reimburses reasonable amounts and asks for a bill or a simple statement is the usual approach to keep it from being treated as extra pay. Under current federal rules, employees generally can't deduct unreimbursed work expenses on their own return, so reimbursement is how the cost gets deducted at all. A short written policy covering who gets a stipend, how much, and what the employee provides each quarter is worth having.

A separate business line, and why it helps

A second number for the business makes the records simple: the bill is the record. It also keeps work calls from landing on your personal phone at dinner, and a business greeting makes you look like a business. See a second phone number for business for the options, and a phone system for a small business if more than one person answers. Compare what a line costs against what a missed call costs: the phone-bill break-even for an AI receptionist uses real numbers, and what a receptionist actually costs shows the alternative.

A dedicated line on a Rocketship plan costs $5 a month on Launch and Frontier, and Mission Control includes 10. That would be a business expense with a clean record, on the same footing as any other phone cost. Your own accountant decides how to treat it.

Questions for your accountant

  1. What business percentage should I use for my phone, and how should I document it?
  2. Should I deduct the phone itself in the year I buy it or depreciate it?
  3. If I reimburse employees, what policy keeps it deductible for me and not taxable for them?

Phone costs are small next to what a customer is worth, which is why customer acquisition cost is the number to watch. Two other pages in this set cover related costs: answering service cost and card fees.

Rocketship answers the phone so no lead is missed, and also finds the buyers, emails them from your own Gmail, follows up, and books the meeting on its own. Plans that get you customers start at $24.99 a month (Launch), and both Launch and Frontier start with a 7-day free trial, card required. Answering your existing number works on Launch, with call minutes bought as you go ($15 for 50), and a dedicated line is $5 a month.