Cell Phones Are Not Listed Property - Part 2

I wanted to follow-up on this blog post where I wrote about cell phones no longer being "listed property."  Listed property is property covered under Section 274 of the Internal Revenue Code and includes "entertainment" property such as computers and cameras.  Vehicles are also considered to be listed property.  Section 274 requires strict documentation of the business vs. non-business usage of listed property.

Legislation in 2010 removed cell phones from the "listed property" category.  As I talked about in my original blog post, this is big news for employees who are provided cell phones by their employers.  The employee will no longer have to track business vs. non-business usage, and the non-business portion will no longer be included in the employee's income.  But what does it mean for people who are self-employed?

The answer is, it really doesn't change anything.  The self-employed will still have to track business vs. non-business usage, and will still only be able to deduct the business portion of cell phone expenses.

Cell Phone Tax Rules Relaxed

The Small Business Jobs Act of 2010, signed into law in September, removes employer-provided cell phones from the category of "listed property."  This means employers can take a deduction for the cost of the cell phones without having to collect burdensome documentation of business vs. personal use from employees. 

In the past, employees would be taxed on the value of the personal calls made from employer-provided cell phones.  This change would appear to eliminate this, although the IRS has not released further guidance on the issue.

Removing cell phones from the "listed property" category means that employees can deduct the cost of cell phones used by the employee as an unreimbursed employee expense without the employee having to meet the "condition of employment" and "for the convenience of the employer" tests.  However, the employee will still have to track the amount of time spent on personal vs. business calls, to calculate the deduction.

For self-employed taxpayers, the change means a relaxation in the strict documentation requirements for cell phones.  However, I would recommend that a self-employed person who uses a cell phone for both business and personal purposes still keep a log of their calls.