Corporate Tax Break for Your and Your Employees’ Smartphones and Tablets
When a corporation provides an employee or a partner with a smartphone or similar telecommunications equipment primarily for non-compensatory business reasons, the employee or partner receives a tax-free fringe benefit. The tax-free part works like this: the employee’s or partner’s business use is a working condition fringe benefit that is excludable from taxable income, while the personal use is a de minimis fringe benefit that also is excludable from taxable income. And to top it off, the employee or partner does not have to keep any records of business use.
To see how this works in action, let’s say you operate your business as an S corporation. The corporation decides to provide you with the smartphone fringe benefit. You use the phone about 15 percent for business and 85 percent for personal purposes. Your annual cost for the phone is $1,260. You benefit as follows:
- Your S corporation reimburses you $1,260 for the smartphone use (cash in your pocket without taxes).
- Your S corporation deducts the $1,260 and passes that tax deduction to you via Schedule K-1. In your 40 percent tax bracket, you realize an additional $504 in cash from this deduction ($1,260 x 40 percent).