Accounting & Bookkeeping & Small Business Forum

[Richard Noot]

Like I said I strongly suggest that you take a basic course in business taxation. One thing you might learn is that the IRS tax pubs are not federal law or tax code as you have stated. Publications are for guidance only and can not be used in a citation. That being said the pub you have cited does NOT state that you do not need to keep proof of your usage..

[dp1903]

Straining out a knat and swallowing a camel, Richard. I accept that you disagree with me. I'm done here.

[RobJ]

Richard Noot wrote: Like I said I strongly suggest that you take a basic course in business taxation. One thing you might learn is that the IRS tax pubs are not federal law or tax code as you have stated. Publications are for guidance only and can not be used in a citation. That being said the pub you have cited does NOT state that you do not need to keep proof of your usage..
Then, would you be so kind as to provide a reference to the appropriate section of the Tax Code that supports your position? Just as an IRS publication is nothing more than the IRS's explanation of the Tax Code, your position carries even less weight without support. Many of us try to support our positions rather than providing unsubstantiated advice.

[dp1903]

This is a no brainer for me. What are the situations which require record keeping of usage of the asset? When the asset is NOT used Exclusively for business, i.e. when it is used for both business and personal use, or when the asset is defined as "Listed Property". These are the only times to my knowledge that record keeping is required. If you disagree, please provide an authoritative source, an IRS pub or code, which states the contrary.

http://www.irs.gov/pub/irs-pdf/p946.pdf

On page 5 of IRS Pub 946:"How To Depreciate Property", [see above link] under "Partial business or investment use" it states - "You must keep records showing the business, investment, and personal use of your property. For more information you must keep FOR LISTED PROPERTY, such as a car, see What Records Must Be Kept, in chapter 5." Chapter 5 is titled "Additional Rules for LISTED PROPERTY".

So, per the above paragraph, when you use property for both business and personal purposes, you must keep records showing the different uses in order to arrive at the business percentage you can use to apply to the costs of the property for a business expense. In addition, if the property is defined as "Listed Property" you must also keep records of usage of the asset, per the above paragraph and chapter 5 of Pub 946. Therefore, implicitly stated from the above paragraph, the only times you are required to keep records of an asset's usage is (1) when it is used for both business and personal purposes or (2) if the asset is defined as "Listed Property".

The instructions for schedule C on Page C-4 under Exceptions states, Quote: "EXCEPTIONS. Listed property does not include photographic, phonographic, communication, or video equipment used exclusively in your trade or business or at your regular business establishment." This means that a cell phone, i.e. communication equipment usually defined as listed property, is not defined as listed property if it is used exclusively in your trade or business or at your regular business establishment. Therefore, since it is not listed property if used in this manner it does not fall under the usage record keeping requirements of listed property. Since it is used exclusively in your trade or business, i.e. implied 100%, it is not used for both business and personal purposes which is the only other time the IRS pub requires you to keep track of an asset's usage. Therefore, it is not necessary to keep track of a cell phone's usage if used exclusively in your trade or business or at your regular business establishment.

If you disagree, provide authoritative sources for your opinion.

[dp1903]

Quote: Like I said I strongly suggest that you take a basic course in business taxation.

Like I said: Quote: In the last 3 years I have worked two seasons for Jackson Hewitt, the second season as a manager and I've been through their basic and advanced tax courses achieving the highest GPA of all classes both years

The advanced tax course included schedule C business returns, business income, expense, and depreciation/amortization. My GPA was 98+. I can get you the name and phone number of the manager of the franchise if you're interested. I believe I've demonstrated my competence in this area, both from these courses and from what I have stated here.

[RobJ]

dp1903 wrote: Quote: Like I said I strongly suggest that you take a basic course in business taxation.

Like I said: Quote: In the last 3 years I have worked two seasons for Jackson Hewitt, the second season as a manager and I've been through their basic and advanced tax courses achieving the highest GPA of all classes both years

The advanced tax course included schedule C business returns, business income, expense, and depreciation/amortization. My GPA was 98+. I can get you the name and phone number of the manager of the franchise if you're interested. I believe I've demonstrated my competence in this area, both from these courses and from what I have stated here.
I clearly understand the reason, but this is getting way too personal. I've been wanting to research Richard's original premise that you have to track each and every phone call, but haven't had the time. I don't have a problem with him telling you that you're wrong; however, he should support his position just as you've supported your's. It doesn't help anyone when there is conflicting advice and that advice is not supported. I appreciate anyone who provides advice and then backs it up.

[Ingmar]

Ok, we have two people here that dont agree with eachother. They are both experienced I think. Lets just say that their differences in oppinion about this, comes from the fact that they happen to work in companies that handle things from a different perspective. There are more roads that lead from A to B, let everybody decide which way to take by themselves.

As my 2 cents to the original question in this topic, maybe the following is still the best way to go:


Ingmar wrote: Why won't your client do this in the future:

1. Pay the amounts owed for the work the subcontractors do, without subtracting anything at all.
2. Stop paying the phonebills of the subcontractors.
3. Have the subcontractors send him a periodic, specified invoice regarding the phonecosts.

This will keep everything very transparent. Also it will prevent your client paying out phonecosts that where not made for his assignments, the phonerecords will have to be clarified here then though.
Last but not least, the IRS can put up all the color flags they want, your client has the documentation to prove that the costs he deducted are indeed all business related to HIS/HER business.


Whether keeping track of phonecalls for a phone that is business exclusively, is required yes or no, the fact in this case still is that the phonebills that are payed are NOT proporty in any way of the business itself, the phone is poroporty of a client. The name on the original bills is different then the name of the company paying them, and therefore can not be treated as such in my oppinion.

But as I said earlier today in one of my other posts:
I could be wrong, but hey, I am Dutch :)

[dp1903]

I am reversing my opinion after further research. I now think that a cell phone is defined as "listed property" under ANY circumstances and, therefore, adequate records/documentation must be kept to establish the business use percentage each year in order to take depreciation deductions, deduct business use service charges, etc. If it is used more than 50% in your business in the first year and you purchase it for business use, you may be able to take a 179 deduction and special depreciation. But, if business use falls to 50% or less in any year thereafter, you have to recapture these items plus the excess of accelerated depreciation over straight line for all prior years and include this amount in income for the current year.

The Exceptions under the schedule C instructions DOES NOT include a cell phone. "Communication" equipment does not include cell phones. Cell phones are listed separately from communication equipment and are defined as telecommunication equipment. That's my opinion.

I went back to my tax course material which made it clear that cell phones ARE listed property in ALL cases.

Richard, I apologize to you. I am sorry. I thought I was providing good info, but you were right in this instance.

[RobJ]

dp1903 wrote: I am reversing my opinion after further research. I now think that a cell phone is defined as "listed property" under ANY circumstances and, therefore, adequate records/documentation must be kept to establish the business use percentage each year in order to take depreciation deductions, deduct business use service charges, etc. If it is used more than 50% in your business in the first year and you purchase it for business use, you may be able to take a 179 deduction and special depreciation. But, if business use falls to 50% or less in any year thereafter, you have to recapture these items plus the excess of accelerated depreciation over straight line for all prior years and include this amount in income for the current year.

The Exceptions under the schedule C instructions DOES NOT include a cell phone. "Communication" equipment does not include cell phones. Cell phones are listed separately from communication equipment and are defined as telecommunication equipment. That's my opinion.

I went back to my tax course material which made it clear that cell phones ARE listed property in ALL cases.

Richard, I apologize to you. I am sorry. I thought I was providing good info, but you were right in this instance.
Can you provide links to support this position?

Rob

[dp1903]

RobJ,

Schedule C instructions, page C-4, right column states:
Quote: Listed property generally includes, but is not limited to:
A. Passenger automobiles weighing 6,000 pounds or less;
B. Any other property used for transportation if the nature of the property lends itself to personal use such as motorcycles, pickup trucks, etc.;
C. Any property used for entertainment or recreational purposes (such as photographic, phonographic, communication and video recording equipment);
D. Cellular telephones or other similar telecommunications equipment; and
E. Computers and peripheral equipment.

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

Quote: "EXCEPTIONS. Listed property does not include photographic, phonographic, communication, or video equipment used exclusively in your trade or business or at your regular business establishment."

(Certain Computers and peripheral equipment also apply under this exception. See page C-4)

The exceptions I quoted applies to "C" only. Note the identical wording in "C" above and in the Exceptions [photographic, phonographic, communication, or video equipment]. Cellular telephones are defined as "telecommunications" equipment rather than communications equipment and listed separately. I conclude that cell phones do not fall under the exceptions but are always classified as listed property.

This is confirmed from the material in my tax course and in Lasser's Business Tax book.

My tax course states:
Quote: Listed property is any of the following:
A. Any passenger automobile wieghing 6,000 pounds or less
B. Any other property used for transportation, unless it is an excepted fehicle
C. Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment) UNLESS it is used only at a regular business establishment and is owned or leased by the person operating the establishment. A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business.
D. Any computer and related peripheral equipment, UNLESS it is used only at a regular business establishment and is owned or leased by the person operating the establishment. A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business.
E. ANY cellular telephone (or similar telecommunication equipment)

Again, the cell phone is listed separately from "photographic, phonographic, communication, and video-recording equipment" which, besides the computer, are the only exceptions to listed property.

[RobJ]

Oops! I'm sorry, I've confused this thread with another. I thought this was an accounting issue and not a tax issue. Clearly, it's a tax issue. I tend to forget what the original question was when we get too far along.

Rob