TAX TIP: Classification of Resources in the world of Hybrid Electronics

Every year we’re seeing more and more electronic devices on the market, from the newest in tablets and smartphones, to 4G enabled cameras. These innovations are making our business lives easier to handle, but it can raise some complicated questions about how to classify these devices when it comes time to declare them in your tax returns.

Mobile phones used to be nothing more than a convenient and portable method of staying in touch with your business. With modern smartphones, they’ve grown to become a tool with which we manage our websites, intercompany emails, video communication, PDA’s, and more. The newest style of phones with extra-large screens, known as Phablets, blur the line between phone and computer even more.

Smart phones, in essence, also extremely powerful computers, but they are classified as telephones according to tax laws. This is based upon one simple fact, their intended primary purpose is “transmission of, or reception of spoken messages, used in connection with a public electronic communications service.”

Things get even more confusing when you start to consider that many companies are starting to encourage a BYOD policy, or bring your own device. This can theoretically serve both masters, allowing the company to save money on investing in electronics for employees who almost certainly have them, and allowing the employee to write off a portion of the cost of their devices service as a personal work related expense.

The solution to the “what is it?” question is thankfully relatively simple, if not entirely accurate in the real world application of these devices. If its “intended primary use” is for voice communication, it’s a phone. Laptops, PDA’s, GPS’s, all of these fail to meet this requirement, even though Laptop’s and Tablets can be used for this purpose through various applications.

If you want to be sure, and especially if you’re working with a large company with dozens or hundreds of employees, be sure to get help from us here at Cooper Bradshaw.

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