When it comes to saving on taxes, every little bit helps.
The IRS allows businesses to provide smartphones and tablets such as iPads as a tax-free fringe benefit, simplifying tax implications and eliminating the need for detailed usage records. Business use of an employer-provided phone or iPad may be treated as a nontaxable working condition fringe benefit so long as it's provided "primarily for noncompensatory business purposes". Examples of such purposes include a need to be accessible: To the company at any time for work-related emergencies and to customers outside of normal business hours or when away from the office.
If the noncompensatory business purposes test is met, the value of any personal use of an employer-provided smartphone will generally be treated as a nontaxable "de minimis" fringe benefit. However, an employer-provided phone will fail the test-and trigger taxable income, if it's provided as a substitute for compensation, or to attract new employees or boost staff morale.
Eligibility. This benefit applies to corporations, partnerships, and other entities, and it can be offered to any or select employees, partners, and independent contractors.
Benefits
- Businesses can deduct smartphone costs.
- Recipients don't pay taxes on this benefit.
- Recipients don't need to keep records of business and personal use.
Sole Proprietors and Single-Member LLCs
Individual sole proprietors and single-member LLCs taxed as sole proprietors do not qualify for the benefits above because they are not considered employees for this fringe benefit. To deduct their smartphones, they need to track business and personal use.
For guidance regarding the tax implications of your specific business's smartphone and tablet fringe benefits, contact us today.