Handbook / Business deductions

Phone and internet deductions for the self-employed: the business share

Your phone and internet connection are probably essential to your business. They are also usually shared with your personal life. That makes them a classic mixed-use expense: deductible in part, with the business share worked out in a way you can explain.

The general rule

Business expenses must be ordinary and necessary for your business. Phone and internet costs used for business meet that test. When they are also used personally, only the business portion is deductible.

The first home landline rule

IRS Publication 587 includes a specific rule for landlines. It says the basic local telephone service charge, including taxes, for the first telephone landline into your home is a nondeductible personal expense. However:

• charges for business long-distance calls on that line are deductible
• the cost of a second line into your home used exclusively for business is deductible

The publication also says not to include these expenses as a cost of using your home for business. Deduct them separately, for example on the utilities line of Schedule C.

Mobile phones

Most self-employed people use a mobile phone for both business and personal calls. Options:

Separate business phone. If a phone is used only for business, its service cost is generally fully deductible. This is the simplest to document.

One phone for both. Deduct the business share of the monthly bill. Work out a reasonable percentage based on how you use it.

Separate business line on one phone. Some carriers offer a second number on the same device. A line used only for business is easier to separate.

Internet

Home internet used for business is typically deductible in proportion to business use. If you work from home most days and use the connection mainly for business, the business share may be substantial; if business use is occasional, it will be smaller.

Keep internet separate from your home office calculation, following the same approach Publication 587 sets out for telephone costs, unless your tax adviser recommends otherwise.

Working out the business share

Use a method you can explain:

• Usage log: track calls, data or time for a representative period, such as a month or a few sample weeks each year.
• Itemised bills: count business calls or data on itemised statements.
• Time-based estimate: for internet, compare business hours online with total household use.

Write down the method and the result. Reuse it unless your usage changes significantly.

Devices and equipment

The cost of a phone, router, modem or other equipment is treated differently from monthly service. The business share may be deducted as an expense or recovered through depreciation, depending on the cost and the elections available. See Section 179 for how larger equipment purchases can be handled.

Records to keep

• monthly phone and internet bills
• your usage log or calculation
• device purchase receipts
• notes of any changes in usage

The IRS recordkeeping page explains what supporting documents should show. See also receipt tracking.

Where it goes on your return

Sole proprietors generally report phone and internet costs on Schedule C, often under utilities. The Schedule C instructions describe each expense line.

Common mistakes

• deducting 100% of a shared phone without justification
• including the first home landline's basic charge
• including phone costs inside the home office deduction
• no record of how the percentage was worked out
• forgetting to deduct the business share at all

Simplify for next year

If tracking the business share feels like a chore, consider a separate business number or phone. It makes deductions simpler, keeps work and personal life apart, and lets you switch off after hours. The guide to home office setup covers equipment choices.

Reviewing each year

Usage changes. If you move to working from home full time, take on clients who call more often, or switch to a separate business phone, update your business-use percentage and note the reason with that year's records.

Deduct the business share of phone and internet, using a documented method; the first home landline's basic charge is personal, but business calls and a dedicated business line are deductible, and these costs are claimed separately from the home office deduction.