I purchased a smartphone to help me conduct my business (mobile hotspot, email, access company intranet, etc.). Previously, I did not own a cellphone, personal or business. Additionally, I signed a personal contract with $0 deposit. I have the option to convert my contract to a business account within the next 90 days with a $150 deposit (my business lacks credit history).
My question is, are mobile phones a business write-off. If so, must my account be designated as a business account?
Of course, now that I have it, I'm constantly streaming Pandora (not for business). How does that affect the situation?
are mobile phones a business write-off.Yes, as long as you use it for business purposes. If you use the phone partly for business, and partly for personal use, then you can only deduct the business portion (but you already knew that). As an example, if you only use your cell for business 75% of the time, then you can only deduct 75% of your expenses related to the cell.
I wouldn't be surprised if there were loopholes, but I think the IRS is actually pretty clear on this aspect of the law. The problem arises in determining what percentage of the time you use it for business versus personal, and then in proving that figure if you ever get audited. Short of keeping a log every time you use it for personal versus business, you are most likely going to end up with an estimate. (Looking at your phone records should help.) If it were me I would err on the side of caution. If you think you use your cell 75% of the time for business, then maybe only deduct 70%. You should consult an accountant about this.
For more on this see IRS Publication 535 Business Expenses. On page 3, under Personal versus Business Expenses, Pub 535 states:
Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.Lastly,
must my account be designated as a business account?I don't know, but if it were me I would designate it a business account. It's the safer way to go, and as Hondo69 pointed out, it will help your business establish a credit history, which is important.
You are much better off making the account a business account. Should any tax questions arise that alone should resolve the issue.
Whether talking about cell phones, auto depreciation or travel expenses the IRS rules are as clear as mud. Even the IRS doesn't understand the rules, though they won't tell you that. I had to reseach the issue a few years back for my own small business and knew going in that the rules would probably be a little fuzzy. But I was shocked at what I uncovered. Calling the rules "fuzzy" is painting the situation in the most positive light.
It's a good idea to put anything you can into a business account now as it helps establish a credit history for future purchases.