Can My S-Corp Pay for My Cell Phone?

Small business owners frequently worry if they can charge specific expenses to their company, especially those that run as S-Corporations. Whether or whether an S-Corp can cover the cost of the owner’s cell phone is one of the most often asked questions. Yes, in a nutshell, however there are a few guidelines that must be followed. The cell phone must first be used for professional purposes. Only the fraction used for commercial purposes can be charged to the corporation if it is used for both personal and business purposes. To demonstrate that a mobile phone is being used for commercial purposes, the owner must also maintain thorough records of their usage. Second, the compensation ought to be fair. The owner is not permitted to overcharge for cell phone service because doing so would be construed as an attempt to evade paying personal income tax. The compensation must be comparable to what other employees would be paid for similar work.

S-Corps may be eligible to deduct mileage for business-related travel in addition to cell phone costs. However, the same restrictions still stand: the trip must be related to business, and the owner is required to keep accurate mileage records. It’s crucial to keep in mind that if an owner uses their personal vehicle for business travel, the car must be registered in the S-Corp’s name and the owner must be paid back for their out-of-pocket costs. The ability of an owner to use their own bank account for their S-Corp is a further frequently asked question. No, is the response. All business expenses for the S-Corp must be paid out of its unique, independent bank account. This makes it easier to distinguish between personal and business finances.

What transpires to money left in an S-Corp depends on the particular circumstances. Any unused gains at the end of the year are normally divided among the S-Corp’s shareholders, assuming it has any. Any surplus profits may be reinvested in the company or given to the owner as personal income if the S-Corp is a single-member corporation.

In conclusion, S-Corps can pay for their owner’s cell phone and deduct travel expenses for professional purposes, but there are guidelines that must be adhered to. It’s critical for small business owners to maintain thorough records and guarantee that all expenditures are within reason. A separate bank account is also required for S-Corps, and the amount of profits that remain at the end of the year will vary depending on the circumstances.