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Trim Your Tax Burden by Deducting Phone, Internet Bills

Feb. 22, 2017
Cell Phones, Utilities
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When looking for deductions this tax season, remember your cell phone and internet service.

Deducting these expenses can help offset income from side gigs, self-employment and other tax scenarios. Knowing the rules is key to avoiding scrutiny from the IRS.

Who can write them off

Anyone from real estate agents and journalists to day care providers and jewelry makers could deduct part or all of their annual cell phone or internet bill.

>> MORE: 4 ways to lower your cell phone bill

The same is true for independent contractors like Uber drivers, TaskRabbit taskers and delivery people for Postmates, Caviar and the like.

The keys: You must use your smartphone or internet service for business, and your employer — if you have one — must not reimburse you.

How much you can write off

You can deduct your entire bill if you have a dedicated business cell phone or internet connection.

Mixing business and pleasure is more complicated. You can deduct only the percentage used for business.

Employees claiming unreimbursed expenses have another hurdle to clear: The sum of job expenses and certain miscellaneous deductions must exceed 2% of adjusted gross income. You can deduct only the amount above 2%.

>> MORECompare cell phone plans

Calculating your percentage

“It has to be reasonable,” says Josh Zimmelman, owner of Westwood Tax and Consulting in New York. “While all of us do business on our phones, we’re also calling mom and dad and dear old grandma and playing the latest games.”

Rob Reed of Partnership Financial in Columbus, Ohio, a financial planning firm, uses that logic when preparing his own taxes.

“I use my cell phone for business, especially on the weekends,” he says. Reed removes the cost of the extra lines for his wife and son. Then he estimates 65% of his bill is business-related.

Unsure of your percentage? It’s better to underestimate. Fudging the numbers higher could trigger an IRS audit. Be sure to save your receipts and keep good records.

>> MORE: Calculate your federal taxes

Where to claim deductions

Tax forms can be confusing, especially if your situation has changed. If you started a business, began freelancing or picked up a side gig in the past year, consider having your taxes done professionally.

Determined to go it alone? Here are forms you’ll need:

  • Individual: Use IRS Form 1040 and Schedule A for itemized deductions.
  • Self-employed or independent contractor: Use IRS Form 1040 and Schedule C or Schedule C-EZ for business income and expenses.

Tax software like TurboTax and H&R Block make it easy. They run through various scenarios, flag common deductions and plug them into the right forms.

They also do the math for you and calculate whether you’re better off taking the standard deduction or itemizing.

Kelsey Sheehy is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @KelseyLSheehy.

This article was written by NerdWallet and was originally published by USA Today.