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Track down employees’ personal use of portable devices

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in Employee Benefits Program,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

For busy businesspeople, cell phones, laptops, PDAs and other portable devices are essential. Usually, the company buys such devices and gives them to higher-ups and other employees who need them.

But such employees might face an unexpected tax bill if the IRS sees how often they use such devices for their personal use.

Strategy: Impose restrictions on personal use of portable devices. Otherwise, the IRS could treat the free personal use as a fully taxable fringe benefit. That means employees would be taxed on the value of the personal benefits received, and your company would owe extra federal employment taxes on that income.

The details: Generally, the law taxes employees on the personal use value of employer-provided fringe benefits, like company cars. The benefit value is treated as part of the employee's compensation. Although portable devices are smaller than a car, the tax rules are essentially the same.

The IRS requires employees to substantiate the business purpose of their expenses. Cell phone use is easy to track because the individual calls are listed on your bill. So, if an employee uses an employer-provided phone for more than just incidental use, it will show up in the records.

Up until now, the IRS hasn't made much of an issue about this often-untaxed fringe benefit. But we're hearing word of increased scrutiny from tax collectors on this issue, particularly with regard to personal use of portable devices by officers of nonprofit organizations. You can expect some guidance from the IRS soon.

Our advice: It's better to be safe than sorry. If your company doesn't have a policy in place yet, develop one and state it in the company manual. Keep detailed records to back up your position.

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