Lately, there's been a lot of brew-ha-ha concerning the IRS enforcement on the treatment of personal usage on business cell phones. Currently, the employee should be allocated as compensation the personal portion of the total calls. The employee is responsible for tracking the phone number and time of each individual call. Then each call must be classified as personal or business, and, if business, state the business purpose and retain the supporting documentation. Businesses must maintain these records in order to support the income exclusion from the employee's wages. See related articles here:
Even the IRS agrees that the recordkeeping for the current system is overly burdensome. To that the IRS has issued Notice 2009-46 to consider the following proposals to simplify the substantiation requirements.
Minimal Personal Use Method - This would allow the employer to deduct the entire cost of the cell phone if the employee maintains a separate cell phone for their personal use which assumes that any personal calls on the business cell phone would be minimal.
Safe Harbor Substantiation Method - Simply sets a standard percentage. The IRS is suggesting 75% business use and 25% personal use.
Statistical Sampling Method - Where some approved statistical sampling technique is applied to a sample and then extrapolated over the entire population to determine the percentages.
Until one of these or some other rule supersedes the current law the IRS has let it be known that they will pursue the cell phone decree. What can we do to protect ourselves?
I had a position with a large regional CPA firm some years ago. Their policy was to reimburse for the business portion of personal cell phone invoices. They provided no cell phones to any employees which certainly irritated me . My feeling was the Company should have provided a cell phone since I was hardly ever in the office and my clients needed to get a hold of me wherever I was. Clearly, a benefit to the firm for me to have a cell phone. Now I understand the method to their madness. But it's a slippery slope when it can take hours to analyze a cell phone bill to reimburse for such a meager amount of money. There is always pressure to keep non-chargeable hours to a minimum, but I'm not going to miss out on a reimbursement that I shouldn't have to justify. It would be cheaper in the end to just pay the $70 or $80 per month and not deduct the expense for tax than to make the employee take the time to figure out the business usage percentage. However, rules are rules and I must comply in order to get my expense reimbursement, so here's how I used Excel and the VLOOKUP function to minimize the non-chargeable time to figure the expense. The VLOOKUP formula is arguably the most common linking process to bring elements from one data base into another database in Excel.
First, download the detail from the cell phone provider's website using an Excel CSV format. The detail usually has the following format.
Next add a column for the VLOOKUP formula to link to the "Business" master file.
Maintain a master file of all of your business related phone numbers.
Notice that I get an error (#NA) when an exact match is not found when using "false" in the range lookup argument. I can assume that any #NA line represents a personal call.
Now pivot the entire downloaded database including the VLOOKUP column to arrive at the business deduction percentage.
It's no fun to fiddle with phones my friends but never forget there's usually a formula or function that can help relieve your IRS pain.