Did you purchase tablets or Smartphones for yourself or your employees to use? Did your company initiate the option of accepting credit card payments using mobile devices using services such as Square or PayPal Here? Incurring these and other mobile-related expenses represent potentially substantial tax breaks for entrepreneurs and small business owners. It’s worth your while to check your records to determine which tax breaks you are eligible to claim when preparing your income tax returns.
Mobile Expenditures and Section 179
Ordinarily, when you purchase business or work-related equipment or tangible items, tax breaks must be calculated based on annual depreciation claims taken over the period of the item’s perceived useful life. Depending on the type of equipment purchased, depreciation may stretch over several years. However, under Section 179, you are allowed to claim a break on your federal income tax return for the entire cost of a newly purchased item during the year it is first put into service for business related purposes. Therefore, if you sink thousands of dollars into company issued tablets and mobile billing equipment for everyone in your company; you can offset that expense by claiming a tax break for the entire amount of your financial investment right away.
However, along with its benefits, Section 179 also has restrictions. For instance, mobile phones, desktop and laptop computers and tablets all qualify for Section 179 tax breaks for the year during which they were purchased and placed into service. If your computer includes pre-installed software, you can deduct the cost of the entire package under Section 179. However, you cannot claim Section 179 tax breaks for stand-alone computer software packages, which are considered intangible property by the IRS.
Property for which you claim Section 179 tax breaks must be devoted at least 51 percent to business related purposes. That means it’s OK to use that tablet to update your Facebook page or to stream Netflix shows and claim Section 179 tax breaks for it during the tax year that you purchased it – as long as you use it primarily for work or business related purposes. Be prepared to document that claim if necessary.
There are also dollar limits to Section 179 tax breaks, although those limits are generous. After a series of annual adjustments in Section 179 tax break limits, Congress passed the Protecting Americans from Tax Hikes (PATH) Act in 2015 to set a permanent annual limit of $500,000 in purchases claimed for Section 179 tax breaks. The PATH Act also set an annual limit of $2 million in overall eligible equipment purchases for businesses to be eligible for the full $500,000 claim.
Regular Depreciation Claims for Mobile Devices
Section 179 tax claims can only be taken during the year that a newly acquired piece of equipment is put into service by an entrepreneur or small business owner. However, the IRS also allows regular depreciation claims for older equipment and tools used for business purposes. Therefore, that tablet you acquired two years ago or that accounting software package you purchased six months ago may still be eligible for a tax break – as long as they are used at least 51 percent for business-related purposes.
Other Mobile-Related Costs
Of course, Smartphones, tablets and other mobile equipment are of little benefit unless they are used. You may claim tax breaks for data plans and cell phone minutes associated with business related purposes. Maintaining a log of business-related calls made using your mobile phone or time spent surfing the web on your tablet for business related purposes assures that you will have accurate records at hand for calculating tax credits.
If you use mobile equipment to accept credit or debit card payments, you may be able to deduct costs imposed by payment processers .You may also be eligible for travel expenses related to using equipment for your business. Specifically, the IRS allows claims for travel to and from your primary place of business for business related purposes. That includes appointments with customers and clients, trips to the post office – and travel to work-related conferences. Finally, if you use a personal vehicle, you can deduct your actual business-related costs, or use the IRS per-mile – which has been set for 54 cents per mile for 2016 and 53.4 cents per mile for 2017. Either way, maintaining accurate records is a must.
Disclaimer: This article provides general descriptions of potential federal income tax breaks associated with obtaining and using mobile devices for business purposes. It is not intended to provide legal or financial advice. Please consult with an accountant or attorney specializing in tax-related matters with specific questions relating to your company concerning tax breaks for mobile devices used for business.