Can You Deduct Your Internet and Cell Phone Bills? Here's What the IRS Says
If you're self-employed, chances are you use your internet connection and cell phone for business nearly every day.
You might answer client calls, send invoices, schedule appointments, access QuickBooks Online, or participate in Zoom meetings.
But can you actually deduct your monthly internet and cell phone bills?
Yes, the business portion of these expenses may generally qualify for a tax deduction.
However, there's an important distinction between using something for business and being able to prove how much of it was used for business.
A tax court case involving a taxpayer who claimed up to 90% business use of his internet and cell phone services demonstrates why that distinction matters.
Let's break down the rules.
Can Self-Employed Individuals Deduct Internet Expenses?
Generally, yes.
Under Internal Revenue Code Section 162, taxpayers may deduct ordinary and necessary expenses incurred in carrying on a trade or business.
Internet service used for legitimate business activities can qualify.
For example, imagine you operate a bookkeeping business from home.
You use the internet to:
Access QuickBooks Online
Communicate with clients
Prepare and transmit financial reports
Participate in Zoom meetings
Access cloud-based business software
Upload documents and manage business records
Clearly, your internet connection serves a business purpose.
However, you might also use that same connection to watch Netflix, browse social media, or play video games.
That means your internet service has both personal and business uses.
Generally, only the properly supported business portion is deductible.
Example: Deducting Your Internet Bill
Assume your internet bill costs $80 per month.
Your annual expense is:
$80 × 12 = $960
After reviewing your actual usage, you reasonably determine that 60% is attributable to business activities.
Your potential deduction would be:
$960 × 60% = $576
Of course, you should be able to explain how you arrived at the 60% figure.
Simply deciding at tax time that your internet use was probably 60% business-related isn't the strongest approach.
Can You Deduct Your Cell Phone Bill?
Yes. Self-employed individuals may generally deduct the business portion of their cell phone expenses.
For example, you may use your phone to:
Make and receive client calls
Respond to business emails
Schedule appointments
Communicate with vendors
Access business applications
Conduct business through text messages or other communication platforms
However, if you use the same phone for personal calls, messaging friends, entertainment, and other personal activities, you must consider that mixed use when determining the deduction.
Example: One Phone for Business and Personal Use
Assume your cell phone plan costs $90 per month.
Your annual expense is:
$90 × 12 = $1,080
You maintain records supporting a reasonable determination that 70% of your phone usage is attributable to business activities.
Your potential deduction would be:
$1,080 × 70% = $756
The amount you can deduct depends on your actual business expenses and the reasonableness of your allocation.
Do You Need a Separate Business Phone?
No.
You don't necessarily need to purchase a second phone or maintain a separate phone plan to deduct business-related cell phone expenses.
However, having a dedicated device and separate business plan may make documenting expenses easier.
If a separate phone is used exclusively for business, its qualifying service costs may generally be fully deductible.
What About Family Cell Phone Plans?
Family plans create an additional consideration.
You generally cannot deduct an entire family phone bill simply because you use one of the phones for business.
You must determine which expenses are attributable to your business use, including an appropriate share of any common charges.
For example, a plan covering four family members may require identifying the cost of your line and allocating any shared charges using a reasonable method.
Key Point
You don't necessarily need a separate business phone or internet connection to claim legitimate deductions. However, only the properly substantiated business portion of mixed-use expenses is generally deductible.
Do You Need a Home Office to Deduct Internet and Cell Phone Expenses?
Here's a common misconception.
You do not necessarily need a qualifying home office to deduct business internet and cell phone expenses.
The home-office deduction generally operates under IRC Section 280A.
Business internet and cell phone deductions are generally evaluated under the ordinary and necessary business expense rules of IRC Section 162.
For example, a self-employed real estate agent might work primarily from a brokerage office and spend much of the day meeting clients.
Even if the agent doesn't qualify for a home-office deduction, qualifying business cell phone expenses may still be deductible.
The same can be true of internet expenses.
And if you use the simplified home-office deduction method, you may still deduct separately identifiable ordinary business expenses that are not expenses of maintaining the home itself.
Just remember: You cannot deduct the same expense twice.
What Does the Tax Court Say About Internet and Cell Phone Deductions?
One particularly interesting case demonstrates why documenting business use matters.
In Kellett v. Commissioner, T.C. Memo. 2022-62, the taxpayer developed an online platform providing demographic, social, and economic information.
While developing his business, the taxpayer incurred internet and cell phone expenses through Verizon.
He claimed that approximately 80% to 90% of his internet and cell phone usage was business-related.
There was just one problem.
He didn't maintain records separating his personal usage from his business usage.
The IRS Challenged the Deduction
The IRS argued that the taxpayer failed to demonstrate the business purpose of the Verizon expenses and that the charges should be treated as nondeductible personal expenses under IRC Section 262.
However, the Tax Court recognized that certain business expenses may be estimated when there is sufficient evidence supporting a reasonable approximation.
This principle comes from Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
Under the Cohan rule, courts may sometimes estimate qualifying expenses when the taxpayer establishes that deductible expenses were incurred but cannot establish the precise amount.
The court still needs a reasonable basis for making the estimate.
Importantly, the Tax Court explained that internet and cell phone expenses are not subject to the strict substantiation requirements of IRC Section 274(d).
Cell phones were removed from the definition of listed property under the Small Business Jobs Act of 2010.
However, ordinary substantiation and recordkeeping requirements still apply.
How the Tax Court Calculated Business Use
Although the taxpayer lacked detailed internet and cell phone usage records, he maintained a contemporaneous Excel spreadsheet documenting his working hours.
The court considered that evidence when estimating business use.
Here is the breakdown:
Source: Kellett v. Commissioner, T.C. Memo. 2022-62. The Tax Court used the taxpayer's contemporaneous working-hours records to estimate his business use of cell phone and internet services. This percentage was specific to the facts of the case and is not a standard IRS allocation method.
The court recognized that the taxpayer used the Verizon services only sparingly while working at his other employment.
For that reason, it excluded those 40 employment hours from its allocation.
The calculation was:
49 business hours ÷ 128 relevant hours = 38.3% business use
Rather than accepting the taxpayer's claimed 80% to 90% business usage, the court allowed a business-use percentage of just 38.3% for expenses paid after the business began operating.
The taxpayer incurred $415 in Verizon expenses during that period.
$415 × 38.3% = approximately $159 deductible
That's significantly less than the taxpayer originally claimed.
What About Expenses Before the Business Opened?
There's another interesting aspect of this decision.
The taxpayer incurred some internet and cell phone expenses before his business officially began operating.
The court treated the qualifying portion of those earlier expenditures as start-up costs under IRC Section 195.
Those expenses were not immediately deductible as ordinary operating expenses.
Instead, the court allowed the relevant start-up expenditures to be recovered over the applicable 180-month amortization period.
This distinction matters for entrepreneurs who incur business expenses before officially launching their businesses.
What Can Business Owners Learn From This Case?
There are three important lessons.
First, mixed personal and business use doesn't automatically eliminate a deduction.
You may still be able to deduct the qualifying business portion.
Second, you need evidence supporting your business-use percentage.
A taxpayer claiming 70% or 80% business use should be prepared to explain how that percentage was determined.
Third, the Tax Court may estimate certain expenses, but it does not have to accept your estimate.
In Kellett, the taxpayer claimed up to 90% business use, but the court allowed only 38.3% during the operating period.
The court's percentage was based on the particular facts and evidence. It is not a universal formula taxpayers can automatically apply to their own phone or internet bills.
Key Point
In Kellett v. Commissioner, the taxpayer claimed 80% to 90% business use of his cell phone and internet services. The Tax Court allowed only 38.3% for the operating period. An estimate may be allowed when supported by evidence, but the court doesn't have to accept your claimed percentage.
How Should You Calculate Your Business-Use Percentage?
There is no universal percentage that every business owner can claim.
The appropriate allocation depends on how the services are used and the expenses actually incurred.
For example, some taxpayers may support their estimates using:
Phone call records
Records of business-related communications
Internet usage information
Business activity logs
Contemporaneous time records
Separate service charges attributable to business activities
You should also consider how unlimited plans and shared household usage affect your allocation.
Simply counting the number of hours you work each week may not accurately measure the business portion of a shared internet connection or phone plan.
The strongest approach is to use a reasonable method that reflects actual business usage and maintain supporting documentation.
What About the First Telephone Line in Your Home?
There's also a special rule for traditional residential landline service.
Under IRC Section 262(b), the basic local telephone service charge for the first telephone line installed in a residence is generally treated as a personal expense.
This remains true even when the taxpayer uses the phone for business.
However, qualifying business long-distance charges and the cost of an additional telephone line used exclusively for business may generally be deductible.
This distinction is important because the first-landline rule is not a blanket prohibition against deducting business cell phone expenses.
Can S Corporation Owners Deduct Internet and Cell Phone Expenses?
S corporation owners have different considerations.
An S corporation may pay for business internet and cell phone services directly or reimburse qualifying expenses incurred by an employee-shareholder.
Reimbursements must satisfy the applicable tax rules, including the requirements of an accountable plan where relevant.
For example, if an S corporation shareholder pays a personal cell phone bill that includes business use, the corporation may be able to reimburse properly substantiated business expenses.
The important distinction is that the reimbursement must reflect legitimate business expenses rather than simply converting personal expenses into tax-free payments.
Final Thoughts: Your Phone and Internet Bills May Be Business Deductions
Most self-employed individuals rely heavily on internet and cell phone services to operate their businesses.
Those expenses can provide legitimate tax deductions, even when the services are also used personally.
But the question isn't simply whether you use your phone or internet for business. It's how much of the expense is properly attributable to business use.
As the Tax Court demonstrated in Kellett v. Commissioner, documentation matters.
A reasonable deduction supported by contemporaneous records is much easier to defend than an unsupported percentage chosen at tax time.
Are You Overlooking Business Tax Deductions?
At Sharp Tax & Accounting, we help small-business owners identify legitimate deductions, understand tax obligations, and implement practical tax-planning strategies.
Whether you're a consultant, real estate agent, attorney, content creator, or another self-employed professional, understanding your deductible business expenses can help you manage your tax obligations more effectively.
Dedicated to Being Sharp.
Sources and Additional Reading
Kellett v. Commissioner, T.C. Memo. 2022-62
Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930)
Disclaimer: This article provides general tax information and does not constitute individualized tax or legal advice. Deductibility depends on the taxpayer's specific circumstances.
