QB data entry question re: work/ cell phone purchase by sole shareholder

thelifeoftheparty · ‎November 05, 2018

My company is set up as an S-Corp- and I am the sole shareholder. Business income has improved this year, and I'm looking at my end of year personal tax liability that will appear on the Schedule K. I'm considering upgrading my current work/cell phone to an IPhone XR or XS before the end of 2018.

I had switched from Verizon Wireless to Cricket Wireless earlier this year to reduce costs, and in order to get the phone I want, I'd need to purchase the phone (plus the $25 upgrade fee) from them directly. That being said, here are my questions:

1- Is this an allowable expense? If so, 100% or only a percentage based on my business/ personal use ratio?

2- Can the phone be purchased outright, or do I have to set up a monthly payment plan?

3- Upon completion of the purchase, would the expense be recorded as a "Fixed Asset" that will depreciate over time, or do I enter it under the "telephone expense" category? When I had switched to Verizon Wireless a few years back, I got an IPhone SE from them and spread the payments out over 24 months- and the expense for the phone and the monthly service was entered as "telephone expense".

If this is even a possibility, I'd like to be sure I'm staying consistent and that I'm following the rules properly.

Any professional advice would be greatly appreciated.

Rustler · ‎November 05, 2018

@thelifeoftheparty

Is the phone account in the company name? Probably not but that sure would make it easier

whether you purchase outright or do monthly payments has no bearing on the issue, other than if you do monthly payments then that payment (assuming the business makes the payment) would be recorded monthly.

There is a de minimus amount of $2,500 wherein you can expense items costing less than that amount rather than making them fixed assets. whether or not you choose to use that expense option is a financial choice you probably should talk to a tax accountant about. I would use office equipment expense if you choose to do that.

100% or business/personal use ratio, is another tax accountant question. Myself if the personal use portion was minimal (judgement call) I would let the business take it all.

qbteachmt · ‎November 05, 2018

The tax rules have no provision that controls if going into debt is the right thing to do or not, and there is no Tax Advantage to being in debt. If you are considering business purchases, you should be able to pay for them, and not go into debt over the decision. There isn't much sense in leveraging this type of activity, since it will simply cost more in interest payments. Bleeding income in exchange for interest expense isn't a great decision.

Having your business pay for the phone and services used to be taxable to you, the employee. It helps not to commingle. If a business line has minimal personal use, then it is a Business expense = ordinary and customary for the business.

What you did years ago doesn't apply, now. The tax regulations changed in Dec 2017. That's why you work with a CPA, and meet with them to help direct you on what specifically applies to you.

thelifeoftheparty · ‎November 06, 2018

Thank you for the insightful comments and feedback. Before I make a decision, I’ll discuss this in more detail with my business accountant and will heed their advice accordingly.

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QB data entry question re: work/ cell phone purchase by sole shareholder