You’re getting a gift from the Internal Revenue Service. Yes, you read that correctly. If you provide cell phones to employees, your life and record-keeping just got easier because now you can provide phones tax-free if they are used primarily for work, according to National Association for the Remodeling Industry's general counsel Paula Goddert.
However, she adds, “If the arrangement is intended as compensation or a bonus to the employee, the cell phone may be a taxable benefit. But if it’s mainly for use in the employer’s business, it is not taxable to the employee and the expense to the employer is deductible as a business expense.” In short, according to Goddert, “it’s all good news, and there’s nothing complicated about it.”
This reduces paperwork for the remodeler — or the company’s accountant — because you no longer need to keep records distinguishing business use from personal use, which was a burden to both employer and employee. For years employees had to highlight which calls on their monthly cell phone bills were for work and turn those bills in to their employers.
Employees can now make personal calls without worrying about any repercussions from the boss or the IRS. That “privilege” of using a work cell phone to call a spouse, child, baby sitter, etc., is now simply considered a fringe benefit, and the employee isn’t required to reimburse his employer for those calls.
So why the change? Essentially, the IRS couldn’t enforce this particular rule. “It’s bad for the tax laws generally if the laws on the books are unenforceable because nobody will obey them,” Goddert explains, adding that the old employee/cell phone use rule was akin to prohibition or a law against adultery: well meaning, overly complicated, and nearly impossible to enforce.
These new cell phone rules apply to all taxable years after Dec. 31, 2009.
—Mark A. Newman, senior editor, REMODELING.
Click here for more information about this on the IRS website.