iPhone X and iPhone 8 were the most popular items on sale during the this holiday season.

One of the questions we do receive at the time of tax filing relates to phone upgrades and tax deductions. This article provides useful tax tips regarding your eligibility.

There are many factors to be considered before including this as part of your tax deduction.

Let us first look at employee deductions and eligibility:

For employees

In order to qualify for a phone deduction, the following are the general tax rules that apply :

1)  Ordinary expense: It should be ordinary and necessary for your work.
2) Unreimbursed employee expenses: It is not reimbursed as part of your employer reimbursement expenses.
3) Necessary for your profession: You are a mobile application development professional or you work in a cell phone repair store. It may be required as part of your profession.

There are two common scenarios for employees.

1) You are not reimbursed for this expense by your employer.

    How much can you deduct?

This deduction is part of unreimbursed employee deductions that can be reported on your Itemized deductions schedule A on your form 1040.

It is Subject to 2% limit on your adjusted income: Eg: $100,000 salary, 2% is $2000. If your cell phone costs exceed this amount you can deduct

Personal vs Business: If you are using one cell phone for business and personal expenses, then ensure you are prorating and reporting this expense. On the other hand,  if you are using one cell phone exclusively for your work purposes, then the entire amount can be included as your itemized tax deduction.

2) You are reimbursed for this expense by your employer.

In this scenario, you may be able to get a full reimbursement based on your employer’s reimbursement policies.
It may be easier to get this deduction if it is required as part of your everyday job eg: Mobile app development or if you are a telecommunications engineer.

For Self-employed and business owners

In order to qualify for a phone deduction, the following are the general tax rules that apply to both these scenarios :

1) Ordinary expense: Considered ordinary for your business operations.
2) Required and necessary for the occupation/ profession/business:

It is far easier to deduct if you are in certain types of businesses. Below are few examples :

a. You are a mobile app developer and you require this as part of your software development project.
b. You are the owner of a cell phone repair company and require the latest model for your training or regular work in running the business.
c. You are sales professional and you require this as a part of your demo to your prospective clients.

3) Other best practices- policy

Drafting a Technology purchase policy: It is easier to deduct if you have a technology purchase policy that clearly outlines and defines purchase limits and business reason to replace phones, laptops etc.

How much can you deduct?

Section 179 deduction: IRS Tax code allows you to take up to $2,500 the same year as you incur.

Should you deduct now i.e current year or later?

There are special rules relating to tangible regulations, so ensure you check with a tax professional for additional information.
Below are the various elections currently available at the time of the tax filing :

De minimis safe harbor election

Safe harbor election for small taxpayers

Election to capitalize repair and maintenance costs

If you have had a very profitable year and you want to minimize taxes that year, you can take the full deduction. If you want to spread it over multiple years, you can choose to amortize depending on the dollar value of the transaction.