By JLP | January 14, 2007
I posted a list of the 5o of the Most of the Most Easily Overlooked Tax Deductions back in November. The deduction for cell phones received a lot of attention. So, here’s what I found out about this particular deduction (NOTE: I am NOT a tax expert. I’m just sharing information that I have found):
Depreciation on Computers or Cell Phones
You can claim a depreciation deduction for a computer or cell phone that you use in your work as an employee if its use is:
For the convenience of your employer, and
Required as a condition of your employment.
For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer or cell phone, see Publication 529.
Depreciation on Computers or Cell Phones
For the convenience of your employer. This means that your use of the computer or cell phone is for a substantial business reason of your employer. You must consider all facts in making this determination. Use of your computer or cell phone during your regular working hours to carry on your employer’s business is generally for the convenience of your employer.
Required as a condition of your employment. This means that you cannot properly perform your duties without the computer or cell phone. Whether you can properly perform your duties without it depends on all the facts and circumstances. It is not necessary that your employer explicitly requires you to use your computer or cell phone. But neither is it enough that your employer merely states that your use of the item is a condition of your employment.
You are an engineer with an engineering firm. You occasionally take work home at night rather than work late at the office. You own and use a computer that is similar to the one you use at the office to complete your work at home. Since your use of the computer is not for the convenience of your employer and is not required as a condition of your employment, you cannot claim a depreciation deduction for it.
Which depreciation method to use. The depreciation method you use depends on whether you meet the more-than-50%-use test.
More-than-50%-use test met. You meet this test if you use the computer or cell phone more than 50% in your work. If you meet this test, you can claim accelerated depreciation under the General Depreciation System (GDS). In addition, you may be able to take the section 179 deduction* for the year you place the item in service.
More-than-50%-use test not met. If you do not meet the more-than-50%-use test, you are limited to the straight line method of depreciation under the Alternative Depreciation System (ADS). You also cannot claim the section 179 deduction. (But if you use your computer in a home office, see the exception below.)
Investment use. Your use of a computer or cell phone in connection with investments (described later under Other Expenses) does not count as use in your work. However, you can combine your investment use with your work use in figuring your depreciation deduction.
If it were me, I would check with a tax accountant BEFORE I tried to deduct a cell phone or computer. In most cases, the deduction doesn’t outweigh the risk of getting audited by the IRS. Oh, and here’s the records you should keep in case the IRS challenges your deductions:
- Documentation from your employer that use of the home computer or cellular telphone is required by the employer
- A log of the time spent using the computer or cellular phone and whether such time was for personal or business use
Source: The Ernst & Young Tax Guide 2007
*IRC Section 179 Deduction
Some taxpayers can elect to recover all or part of the cost of certain qualifying property, up to a certain dollar limit each year, by claiming a Section 179 deduction. By taking the Section 179 deduction a taxpayer chooses to deduct depreciation up front rather than over the life of the asset. It is especially important to remember that the Section 179 deduction may be taken only on assets acquired for use in trade or business, not on property used for other income-producing activities, such as rental activities. See Publication 946, How to Depreciate Property, for detailed rules applicable to the Section 179 deduction. (I found this information here.)