Most employees who receive a W-2 assume that they are not eligible for any further tax deductions. There are actually a number of “high tech” deductions, such as cell phones, internet service, laptops, software and more that can be claimed by individuals who use these items for business.
John Topham, CPA, founding partner of Damon, Topham & Company, tax specialists and 2011 FIVE STAR Wealth Managers based in Marshfield, MA, shares his insight on high tech deductions of items an individual uses for business, but that are NOT supplied by his/her employer.
According to Topham, “To be deductible, these must be ordinary and necessary and paid or incurred in carrying out required employment activities/duties. Key deductions would be auto and travel, meals and entertainment and miscellaneous employee business expenses. Miscellaneous employee business expenses would include these high tech items.”
Topham advises taxpayers on these key deductions:
High tech gadgets are considered Miscellaneous Employee Business Expenses. Employee Business Expenses are reported on Form 2106 and are subject to a 2 percent AGI limitation. Meaning that, if your AGI is $100,000, the limit or floor is $2,000. You would need $2,001 in expenses to deduct $1 in expense.
High tech expenses can be classified into to three categories and must be ordinary and necessary business expenses:
Tangible items: Computers, laptops, smart phones, printers and modems, routers, external hard drives, Bluetooth devices, etc.
Software items: Business applications, industry-specific software, Microsoft Office, QuickBooks, Adobe, etc.
Service and or access fees: Typically the monthly charge for some type of connectivity, data plans, internet fees, on-line back-up services, on-line identity protection.
Documentation is key. When purchasing high tech gadgets, documentation is key. Be sure to keep receipts, canceled checks, invoices and other documentation.
Record-keeping of usage is necessary with high tech gadgets. These are employee business expenses which fall under the IRS contemporaneous records requirement. This means a log of activity including date, business purpose or task, and time/hours. The business use is calculated from the log which records the above. An example would be 1,200 hours of total computer usage during the year with 400 of those hours business related. One third of the related expenses would be deductible that year. If the expense is clearly business-related, such as industry-specific, a log is not necessary.
Topham noted, “Stay within the limitations as outlined above, keep your receipts and track your business usage of high tech items. Be wary of trying to deduct clearly personal expenses, such as gaming systems, televisions, etc. as it will increase your risk of tax audit.”
About Damon, Topham & Company
Damon, Topham & Company, LLC, are Certified Public Accountants and Business Development Advisors. Damon, Topham & Company has been named a 2011 FIVE STAR Wealth Manager and is part of that elite group which represents less than 3 percent of the wealth managers in the Boston area.
Utilize the “Damon, Topham Advantage”- go beyond the traditional services of auditing, accounting and taxation. Damon, Topham & Company provides business valuation, estate, individual and corporate tax planning and savings, financial planning, consulting and financing solutions. A full service multi-disciplined firm, Damon, Topham & Company has been serving the South Shore for over 20 years. Damon, Topham & Company, LLC, is located just off Route 139, 475 School St., Suite 8, Marshfield, MA. For more information, please visit the company’s website at www.damtopcpa.com.