What portion of my phone/internet bills is deductible?

by | Jun 6, 2025 | Business Taxes, Deductions & Write-Offs

Here’s what HIVE AI had to say about “What portion of my phone/internet bills is deductible?”:

The deductibility of phone and internet bills depends on several factors, including the nature of your business use, whether you have a home office, and the specific type of service. Let me provide you with a comprehensive analysis of how to properly deduct these expenses.

Basic Local Telephone Service Limitation

The fundamental rule for telephone expenses is that any charge (including taxes thereon) for basic local telephone service with respect to the 1st telephone line provided to any residence of the taxpayer shall be treated as a personal expense IRC § 262(b) under Section 262(b) of the Internal Revenue Code. This means that the basic local telephone service charge, including taxes, for the first telephone landline into your home is a nondeductible personal expense IRS – Publication 587: Business Use of Your Home (Including Use by Daycare Providers) .

The IRS reinforces this principle in its guidance for rental property owners, stating that the base rate (including taxes and other charges) for local telephone service for the first telephone line into your residence is a personal expense and is not deductible IRS – Instruction 1040 (Schedule E): Instructions for Schedule E (Form 1040), Supplemental Income and Loss . Additionally, for rental properties, you can’t deduct any part of the cost of the first phone line even if your tenants have unlimited use of it IRS – Publication 527: Residential Rental Property (Including Rental of Vacation Homes) .

Deductible Phone Expenses

Despite the limitation on basic local service, several types of phone expenses remain deductible:

Business Long-Distance Calls

Charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses IRS – Publication 587: Business Use of Your Home (Including Use by Daycare Providers) . For rental property owners, you can deduct the cost of ordinary and necessary telephone calls related to your rental activities or royalty income (for example, calls to the renter) IRS – Instruction 1040 (Schedule E): Instructions for Schedule E (Form 1040), Supplemental Income and Loss .

Second Business Lines

If you install a second telephone line exclusively for business use, the entire cost of that line is deductible. As the IRS explains, if you pay for a second phone line that is strictly for your tenant’s use, all the cost of the second line is deductible as a rental expense IRS – Publication 527: Residential Rental Property (Including Rental of Vacation Homes) .

Cell Phone Expenses

Cell phone expenses can be partially deductible based on business use. The Tax Court has provided guidance on this issue, noting that when determining the deductible portion, courts will consider the percentage of business use. In one case, the parties agree that 30% of petitioners’ cell phone bill is deductible Dawson U.S. Tax Court Opinions: Kyle D. Simpson & Christen Simpson , demonstrating that partial deductibility is acceptable when properly substantiated.

In another case, the court found that petitioner used that phone primarily for business. We consider it reasonable to allow petitioner to deduct 80% of the $1,442 charge for the cellular phone. We hold that petitioner may deduct $1,154 for cellular phone service ($1,442 × 80%) Dawson U.S. Tax Court Opinions: Ronald G. Ezzell, Jr. .

Internet Service Deductibility

Internet services are generally more favorable for deduction purposes than telephone services, as they don’t have the same statutory restrictions as basic local telephone service.

Business Use Percentage

Internet services do not fall under the definition of listed property under section 280F(d)(4) and are not subject to the heightened substantiation requirements of section 274(d) Dawson U.S. Tax Court Opinions: Kyle D. Simpson & Christen Simpson . This means that the Court may allow a deduction (or a portion thereof) even if the taxpayer is unable to substantiate it, so long as there is a sufficient evidentiary basis for doing so Dawson U.S. Tax Court Opinions: Kyle D. Simpson & Christen Simpson .

The Tax Court has accepted reasonable estimates of business use for internet services. In one case, petitioner testified credibly that she used the wireless Internet service for both personal and business purposes. She estimated that approximately 70% of her wireless Internet use was business related. Although petitioner did not offer a log or other record of her wireless Internet use, we have held that Internet access expenses are not subject to the strict substantiation requirements of section 274(d). Considering all the circumstances, we conclude that the cost of wireless Internet access was an ordinary and necessary business expense and we accept as reasonable petitioner’s estimate that approximately 70% of her wireless Internet use was business related. As a result, she is entitled to a deduction of $442 (i.e., 70% of the TimeWarner charges attributable to that service) Dawson U.S. Tax Court Opinions: Lauren Elizabeth Miller Dawson U.S. Tax Court Opinions: Lauren Elizabeth Miller .

Home Office Internet

If you qualify for the home office deduction, if you use part of your home for business, you can deduct the business part of these expenses. Generally, the business percentage for utilities is the same as the percentage of your home used for business IRS – Publication 587: Business Use of Your Home (Including Use by Daycare Providers) . However, do not include these expenses as a cost of using your home for business. Deduct these charges separately on the appropriate form or schedule. For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home) IRS – Publication 587: Business Use of Your Home (Including Use by Daycare Providers) .

Substantiation Requirements

While internet services don’t require the strict substantiation of Section 274(d), you still need to establish business use. The Tax Court has emphasized the importance of providing a reasonable basis for business use estimates. In one case where the taxpayer failed to provide adequate substantiation, Kilpatrick did not provide the Court with a reasonable basis for making an estimate of the deductible portion of his internet expenses. When pressed for the percentage of home internet use for business purposes for both 2009 and 2010, Kilpatrick said: Well, if an argument if–where you asked me the question if some could be personal and the answer could be yes. I would think a reasonable thing to do would say 50-50 as opposed to $12. Would you concede to do it 50 percent to move this along? I probably would have Dawson U.S. Tax Court Opinions: Sam D. Kilpatrick Dawson U.S. Tax Court Opinions: Sam D. Kilpatrick Dawson U.S. Tax Court Opinions: Sam D. Kilpatrick .

Conversely, when taxpayers fail to establish any business purpose, deductions are denied. In another case, the bills for internet service show that they were mailed to the address of Apartment 16A, which we have found to be Ms. Sham’s personal residence. The bills for the telephone are apparently for cellular phone service. Ms. Sham proffered no specific business purpose for these expenses other than her general statements, and we find that the telephone and internet services were for personal use. Ms. Sham has failed to meet the strict substantiation requirements of section 274(d) for these deductions Dawson U.S. Tax Court Opinions: Alka Sham .

Bundled Services

When you have bundled telecommunications packages that include multiple services, proper allocation is required. The Tax Court has addressed this situation: as to the bundled package, we have found that one television, two phone lines, and some of the Internet service were for the benefit of the repair business. While the record does not include a breakdown of the cost for 2010 of each of the services underlying the bundled package, there is a stipulated bill for a bundled package provided to petitioner during 2012, which breaks down the charges for the various services for 2012. We understand that the parties included this bill in the record as representative of the charges for the various bundled services during 2010, and we use the bill to determine the amount of petitioner’s deduction for utilities expenses for 2010. The bill shows that the monthly cost for digital cable, Internet service, and one telephone line is $115.77, that the monthly cost of the second telephone line is $29.95, and that petitioner paid for each month tax and various fees at a rate that we calculate as 7.86%. For 2010 we allow petitioner to deduct for each month 80% of the $115.77 and all of the $29.95, plus an additional amount for tax and fees Dawson U.S. Tax Court Opinions: Ronald G. Ezzell, Jr. .

Practical Guidelines for Deducting Phone and Internet Expenses

To maximize your legitimate deductions while maintaining compliance:

Document Business Use: Maintain records showing the business purpose and percentage of business use for your phone and internet services. While strict substantiation isn’t required for internet services, having reasonable documentation supports your position.

Separate Business Lines: Consider installing a dedicated business phone line, as the entire cost of a second line used exclusively for business is fully deductible.

Track Cell Phone Usage: For cell phones used for both business and personal purposes, estimate the percentage of business use based on actual usage patterns, call logs, or time spent on business-related activities.

Allocate Bundled Services: When you have bundled telecommunications packages, allocate the costs based on the business use of each component service.

Apply Reasonable Percentages: Courts have accepted various business use percentages (30%, 50%, 70%, 80%) when supported by credible testimony and reasonable circumstances.

In summary, while you cannot deduct the basic local telephone service for your first residential line, you can deduct business long-distance calls, second business lines, and a reasonable percentage of cell phone and internet costs based on actual business use. Internet services are particularly favorable for deduction as they’re not subject to the strict substantiation requirements that apply to some other business expenses.

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