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1040ez 2012 Instructions

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1040ez 2012 Instructions

1040ez 2012 instructions 2. 1040ez 2012 instructions   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. 1040ez 2012 instructions 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. 1040ez 2012 instructions Deduction may depend on your type of business. 1040ez 2012 instructions Exception for events that benefit charitable organizations. 1040ez 2012 instructions Food and beverages in skybox seats. 1040ez 2012 instructions What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. 1040ez 2012 instructions You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. 1040ez 2012 instructions The rules and definitions are summarized in Table 2-1 . 1040ez 2012 instructions You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. 1040ez 2012 instructions Directly-related test. 1040ez 2012 instructions Associated test. 1040ez 2012 instructions Both of these tests are explained later. 1040ez 2012 instructions An ordinary expense is one that is common and accepted in your trade or business. 1040ez 2012 instructions A necessary expense is one that is helpful and appropriate for your business. 1040ez 2012 instructions An expense does not have to be required to be considered necessary. 1040ez 2012 instructions The amount you can deduct for entertainment expenses may be limited. 1040ez 2012 instructions Generally, you can deduct only 50% of your unreimbursed entertainment expenses. 1040ez 2012 instructions This limit is discussed later under 50% Limit. 1040ez 2012 instructions Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. 1040ez 2012 instructions Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. 1040ez 2012 instructions Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. 1040ez 2012 instructions See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. 1040ez 2012 instructions You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. 1040ez 2012 instructions It is not necessary to devote more time to business than to entertainment. 1040ez 2012 instructions However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. 1040ez 2012 instructions Table 2-1. 1040ez 2012 instructions When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. 1040ez 2012 instructions Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 1040ez 2012 instructions An ordinary expense is one that is common and accepted in your trade or business. 1040ez 2012 instructions A necessary expense is one that is helpful and appropriate. 1040ez 2012 instructions Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. 1040ez 2012 instructions   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. 1040ez 2012 instructions Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 1040ez 2012 instructions You cannot deduct expenses that are lavish or extravagant under the circumstances. 1040ez 2012 instructions You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). 1040ez 2012 instructions You do not have to show that business income or other business benefit actually resulted from each entertainment expense. 1040ez 2012 instructions Clear business setting. 1040ez 2012 instructions   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. 1040ez 2012 instructions The following situations are examples of entertainment in a clear business setting. 1040ez 2012 instructions Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. 1040ez 2012 instructions Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). 1040ez 2012 instructions Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. 1040ez 2012 instructions An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. 1040ez 2012 instructions Expenses not considered directly related. 1040ez 2012 instructions   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. 1040ez 2012 instructions The following are examples of situations where there are substantial distractions. 1040ez 2012 instructions A meeting or discussion at a nightclub, theater, or sporting event. 1040ez 2012 instructions A meeting or discussion during what is essentially a social gathering, such as a cocktail party. 1040ez 2012 instructions A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. 1040ez 2012 instructions Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. 1040ez 2012 instructions To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). 1040ez 2012 instructions Associated with trade or business. 1040ez 2012 instructions   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. 1040ez 2012 instructions The purpose may be to get new business or to encourage the continuation of an existing business relationship. 1040ez 2012 instructions Substantial business discussion. 1040ez 2012 instructions   Whether a business discussion is substantial depends on the facts of each case. 1040ez 2012 instructions A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. 1040ez 2012 instructions   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. 1040ez 2012 instructions It is not necessary that you devote more time to business than to entertainment. 1040ez 2012 instructions You do not have to discuss business during the meal or entertainment. 1040ez 2012 instructions Meetings at conventions. 1040ez 2012 instructions   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. 1040ez 2012 instructions However, your reason for attending the convention or meeting must be to further your trade or business. 1040ez 2012 instructions The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. 1040ez 2012 instructions Directly before or after business discussion. 1040ez 2012 instructions   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. 1040ez 2012 instructions   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. 1040ez 2012 instructions Among the facts to consider are the place, date, and duration of the business discussion. 1040ez 2012 instructions If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. 1040ez 2012 instructions Example. 1040ez 2012 instructions A group of business associates comes from out of town to your place of business to hold a substantial business discussion. 1040ez 2012 instructions If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. 1040ez 2012 instructions The expense meets the associated test. 1040ez 2012 instructions 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. 1040ez 2012 instructions (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. 1040ez 2012 instructions See Individuals subject to “hours of service” limits , later. 1040ez 2012 instructions ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. 1040ez 2012 instructions Figure A summarizes the general rules explained in this section. 1040ez 2012 instructions The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. 1040ez 2012 instructions Included expenses. 1040ez 2012 instructions   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. 1040ez 2012 instructions However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. 1040ez 2012 instructions Figure A. 1040ez 2012 instructions Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. 1040ez 2012 instructions See Exceptions to the 50% Limit . 1040ez 2012 instructions Please click here for the text description of the image. 1040ez 2012 instructions Figure A. 1040ez 2012 instructions Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. 1040ez 2012 instructions   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. 1040ez 2012 instructions   The 50% limit also applies to certain meal and entertainment expenses that are not business related. 1040ez 2012 instructions It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. 1040ez 2012 instructions It also applies to the cost of meals included in deductible educational expenses. 1040ez 2012 instructions When to apply the 50% limit. 1040ez 2012 instructions   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. 1040ez 2012 instructions You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. 1040ez 2012 instructions Example 1. 1040ez 2012 instructions You spend $200 for a business-related meal. 1040ez 2012 instructions If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. 1040ez 2012 instructions Your deduction cannot be more than $45 (50% × $90). 1040ez 2012 instructions Example 2. 1040ez 2012 instructions You purchase two tickets to a concert and give them to a client. 1040ez 2012 instructions You purchased the tickets through a ticket agent. 1040ez 2012 instructions You paid $200 for the two tickets, which had a face value of $80 each ($160 total). 1040ez 2012 instructions Your deduction cannot be more than $80 (50% × $160). 1040ez 2012 instructions Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. 1040ez 2012 instructions Figure A can help you determine if the 50% limit applies to you. 1040ez 2012 instructions Expenses not subject to 50% limit. 1040ez 2012 instructions   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. 1040ez 2012 instructions 1 - Employee's reimbursed expenses. 1040ez 2012 instructions   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. 1040ez 2012 instructions Accountable plans are discussed in chapter 6. 1040ez 2012 instructions 2 - Self-employed. 1040ez 2012 instructions   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. 1040ez 2012 instructions You have these expenses as an independent contractor. 1040ez 2012 instructions Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. 1040ez 2012 instructions You provide adequate records of these expenses to your customer or client. 1040ez 2012 instructions (See chapter 5 . 1040ez 2012 instructions )   In this case, your client or customer is subject to the 50% limit on the expenses. 1040ez 2012 instructions Example. 1040ez 2012 instructions You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. 1040ez 2012 instructions You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. 1040ez 2012 instructions If the client can deduct the expenses, the client is subject to the 50% limit. 1040ez 2012 instructions If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. 1040ez 2012 instructions 3 - Advertising expenses. 1040ez 2012 instructions   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. 1040ez 2012 instructions For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. 1040ez 2012 instructions 4 - Sale of meals or entertainment. 1040ez 2012 instructions   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. 1040ez 2012 instructions For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. 1040ez 2012 instructions 5 - Charitable sports event. 1040ez 2012 instructions   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. 1040ez 2012 instructions For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. 1040ez 2012 instructions Individuals subject to “hours of service” limits. 1040ez 2012 instructions   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. 1040ez 2012 instructions The percentage is 80%. 1040ez 2012 instructions   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. 1040ez 2012 instructions Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. 1040ez 2012 instructions Interstate truck operators and bus drivers who are under Department of Transportation regulations. 1040ez 2012 instructions Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. 1040ez 2012 instructions Certain merchant mariners who are under Coast Guard regulations. 1040ez 2012 instructions What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. 1040ez 2012 instructions Entertainment. 1040ez 2012 instructions   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. 1040ez 2012 instructions Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. 1040ez 2012 instructions   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. 1040ez 2012 instructions A meal as a form of entertainment. 1040ez 2012 instructions   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. 1040ez 2012 instructions A meal expense includes the cost of food, beverages, taxes, and tips for the meal. 1040ez 2012 instructions To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. 1040ez 2012 instructions    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. 1040ez 2012 instructions    Meals sold in the normal course of your business are not considered entertainment. 1040ez 2012 instructions Deduction may depend on your type of business. 1040ez 2012 instructions   Your kind of business may determine if a particular activity is considered entertainment. 1040ez 2012 instructions For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. 1040ez 2012 instructions This is because fashion shows are typical in your business. 1040ez 2012 instructions But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. 1040ez 2012 instructions Separating costs. 1040ez 2012 instructions   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. 1040ez 2012 instructions You must have a reasonable basis for making this allocation. 1040ez 2012 instructions For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. 1040ez 2012 instructions Taking turns paying for meals or entertainment. 1040ez 2012 instructions   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. 1040ez 2012 instructions Lavish or extravagant expenses. 1040ez 2012 instructions   You cannot deduct expenses for entertainment that are lavish or extravagant. 1040ez 2012 instructions An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. 1040ez 2012 instructions Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 1040ez 2012 instructions Allocating between business and nonbusiness. 1040ez 2012 instructions   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. 1040ez 2012 instructions You can deduct only the business part. 1040ez 2012 instructions If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. 1040ez 2012 instructions Example. 1040ez 2012 instructions You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. 1040ez 2012 instructions Only 4/11 of the expense qualifies as a business entertainment expense. 1040ez 2012 instructions You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. 1040ez 2012 instructions Trade association meetings. 1040ez 2012 instructions   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. 1040ez 2012 instructions These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. 1040ez 2012 instructions Entertainment tickets. 1040ez 2012 instructions   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. 1040ez 2012 instructions For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. 1040ez 2012 instructions Exception for events that benefit charitable organizations. 1040ez 2012 instructions   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. 1040ez 2012 instructions You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. 1040ez 2012 instructions The event's main purpose is to benefit a qualified charitable organization. 1040ez 2012 instructions The entire net proceeds go to the charity. 1040ez 2012 instructions The event uses volunteers to perform substantially all the event's work. 1040ez 2012 instructions    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. 1040ez 2012 instructions Example 1. 1040ez 2012 instructions You purchase tickets to a golf tournament organized by the local volunteer fire company. 1040ez 2012 instructions All net proceeds will be used to buy new fire equipment. 1040ez 2012 instructions The volunteers will run the tournament. 1040ez 2012 instructions You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. 1040ez 2012 instructions Example 2. 1040ez 2012 instructions You purchase tickets to a college football game through a ticket broker. 1040ez 2012 instructions After having a business discussion, you take a client to the game. 1040ez 2012 instructions Net proceeds from the game go to colleges that qualify as charitable organizations. 1040ez 2012 instructions However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. 1040ez 2012 instructions Skyboxes and other private luxury boxes. 1040ez 2012 instructions   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. 1040ez 2012 instructions   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. 1040ez 2012 instructions For example, renting a skybox for a series of playoff games is considered renting it for more than one event. 1040ez 2012 instructions All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. 1040ez 2012 instructions   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. 1040ez 2012 instructions Example. 1040ez 2012 instructions You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. 1040ez 2012 instructions The cost of regular nonluxury box seats at each event is $30 a seat. 1040ez 2012 instructions You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). 1040ez 2012 instructions Food and beverages in skybox seats. 1040ez 2012 instructions   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. 1040ez 2012 instructions The amounts separately stated for food and beverages must be reasonable. 1040ez 2012 instructions You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. 1040ez 2012 instructions What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. 1040ez 2012 instructions Club dues and membership fees. 1040ez 2012 instructions   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. 1040ez 2012 instructions This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. 1040ez 2012 instructions   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. 1040ez 2012 instructions You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 1040ez 2012 instructions Entertainment facilities. 1040ez 2012 instructions   Generally, you cannot deduct any expense for the use of an entertainment facility. 1040ez 2012 instructions This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. 1040ez 2012 instructions   An entertainment facility is any property you own, rent, or use for entertainment. 1040ez 2012 instructions Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. 1040ez 2012 instructions Out-of-pocket expenses. 1040ez 2012 instructions   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. 1040ez 2012 instructions These are not expenses for the use of an entertainment facility. 1040ez 2012 instructions However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. 1040ez 2012 instructions Expenses for spouses. 1040ez 2012 instructions   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. 1040ez 2012 instructions However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. 1040ez 2012 instructions Example. 1040ez 2012 instructions You entertain a customer. 1040ez 2012 instructions The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. 1040ez 2012 instructions The customer's spouse joins you because it is impractical to entertain the customer without the spouse. 1040ez 2012 instructions You can deduct the cost of entertaining the customer's spouse. 1040ez 2012 instructions If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. 1040ez 2012 instructions Gift or entertainment. 1040ez 2012 instructions   Any item that might be considered either a gift or entertainment generally will be considered entertainment. 1040ez 2012 instructions However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. 1040ez 2012 instructions   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. 1040ez 2012 instructions You can treat the tickets as either a gift or entertainment, whichever is to your advantage. 1040ez 2012 instructions   You can change your treatment of the tickets at a later date by filing an amended return. 1040ez 2012 instructions Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. 1040ez 2012 instructions   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. 1040ez 2012 instructions You cannot choose, in this case, to treat the tickets as a gift. 1040ez 2012 instructions Prev  Up  Next   Home   More Online Publications
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The 1040ez 2012 Instructions

1040ez 2012 instructions 6. 1040ez 2012 instructions   Tip Income Table of Contents Introduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. 1040ez 2012 instructions Reporting Tips to Your EmployerElectronic tip statement. 1040ez 2012 instructions Final report. 1040ez 2012 instructions Reporting Tips on Your Tax Return Allocated Tips Introduction This chapter is for employees who receive tips. 1040ez 2012 instructions All tips you receive are income and are subject to federal income tax. 1040ez 2012 instructions You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. 1040ez 2012 instructions The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. 1040ez 2012 instructions Reporting your tip income correctly is not difficult. 1040ez 2012 instructions You must do three things. 1040ez 2012 instructions Keep a daily tip record. 1040ez 2012 instructions Report tips to your employer. 1040ez 2012 instructions Report all your tips on your income tax return. 1040ez 2012 instructions  This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. 1040ez 2012 instructions This chapter will also show you how to treat allocated tips. 1040ez 2012 instructions For information on special tip programs and agreements, see Publication 531. 1040ez 2012 instructions Useful Items - You may want to see: Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137 Social Security and Medicare Tax on Unreported Tip Income 4070 Employee's Report of Tips to Employer Keeping a Daily Tip Record Why keep a daily tip record. 1040ez 2012 instructions   You must keep a daily tip record so you can: Report your tips accurately to your employer, Report your tips accurately on your tax return, and Prove your tip income if your return is ever questioned. 1040ez 2012 instructions How to keep a daily tip record. 1040ez 2012 instructions   There are two ways to keep a daily tip record. 1040ez 2012 instructions You can either: Write information about your tips in a tip diary, or Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips. 1040ez 2012 instructions You should keep your daily tip record with your tax or other personal records. 1040ez 2012 instructions You must keep your records for as long as they are important for administration of the federal tax law. 1040ez 2012 instructions For information on how long to keep records, see How long to keep records in chapter 1. 1040ez 2012 instructions    If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. 1040ez 2012 instructions To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. 1040ez 2012 instructions Also, Publication 1244 is available online at www. 1040ez 2012 instructions irs. 1040ez 2012 instructions gov/pub/irs-pdf/p1244. 1040ez 2012 instructions pdf. 1040ez 2012 instructions Publication 1244 includes a 1-year supply of Form 4070A. 1040ez 2012 instructions Each day, write in the information asked for on the form. 1040ez 2012 instructions   In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. 1040ez 2012 instructions Although you do not report these tips to your employer, you must report them on your tax return. 1040ez 2012 instructions   If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). 1040ez 2012 instructions Then, each workday, write the date and the following information. 1040ez 2012 instructions Cash tips you get directly from customers or from other employees. 1040ez 2012 instructions Tips from credit and debit card charge customers that your employer pays you. 1040ez 2012 instructions The value of any noncash tips you get, such as tickets, passes, or other items of value. 1040ez 2012 instructions The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips. 1040ez 2012 instructions Electronic tip record. 1040ez 2012 instructions   You can use an electronic system provided by your employer to record your daily tips. 1040ez 2012 instructions If you do, you must receive and keep a paper copy of this record. 1040ez 2012 instructions Service charges. 1040ez 2012 instructions    Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. 1040ez 2012 instructions This is part of your wages, not a tip. 1040ez 2012 instructions See examples below. 1040ez 2012 instructions Example 1. 1040ez 2012 instructions Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. 1040ez 2012 instructions Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. 1040ez 2012 instructions Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. 1040ez 2012 instructions Do not include the 18% charge in your tip diary. 1040ez 2012 instructions Service charges that are paid to you are considered wages, not tips. 1040ez 2012 instructions Example 2. 1040ez 2012 instructions Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. 1040ez 2012 instructions David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. 1040ez 2012 instructions Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. 1040ez 2012 instructions Be sure to include this amount in your tip diary. 1040ez 2012 instructions Reporting Tips to Your Employer Why report tips to your employer. 1040ez 2012 instructions   You must report tips to your employer so that: Your employer can withhold federal income tax and social security, Medicare, Additional Medicare, or railroad retirement taxes, Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board (which affects your benefits when you retire or if you become disabled, or your family's benefits if you die), and You can avoid the penalty for not reporting tips to your employer (explained later). 1040ez 2012 instructions What tips to report. 1040ez 2012 instructions   Report to your employer only cash, check, and debit and credit card tips you receive. 1040ez 2012 instructions   If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer. 1040ez 2012 instructions   If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. 1040ez 2012 instructions Do not report to your employer any portion of the tips you receive that you pass on to other employees. 1040ez 2012 instructions However, you must report tips you receive from other employees. 1040ez 2012 instructions    Do not report the value of any noncash tips, such as tickets or passes, to your employer. 1040ez 2012 instructions You do not pay social security, Medicare, Additional Medicare or railroad retirement taxes on these tips. 1040ez 2012 instructions How to report. 1040ez 2012 instructions    If your employer does not give you any other way to report tips, you can use Form 4070. 1040ez 2012 instructions Fill in the information asked for on the form, sign and date the form, and give it to your employer. 1040ez 2012 instructions To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244. 1040ez 2012 instructions   If you do not use Form 4070, give your employer a statement with the following information. 1040ez 2012 instructions Your name, address, and social security number. 1040ez 2012 instructions Your employer's name, address, and business name (if it is different from your employer's name). 1040ez 2012 instructions The month (or the dates of any shorter period) in which you received tips. 1040ez 2012 instructions The total tips required to be reported for that period. 1040ez 2012 instructions You must sign and date the statement. 1040ez 2012 instructions Be sure to keep a copy with your tax or other personal records. 1040ez 2012 instructions   Your employer may require you to report your tips more than once a month. 1040ez 2012 instructions However, the statement cannot cover a period of more than 1 calendar month. 1040ez 2012 instructions Electronic tip statement. 1040ez 2012 instructions   Your employer can have you furnish your tip statements electronically. 1040ez 2012 instructions When to report. 1040ez 2012 instructions   Give your report for each month to your employer by the 10th of the next month. 1040ez 2012 instructions If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday. 1040ez 2012 instructions Example. 1040ez 2012 instructions You must report your tips received in September 2014 by October 10, 2014. 1040ez 2012 instructions Final report. 1040ez 2012 instructions   If your employment ends during the month, you can report your tips when your employment ends. 1040ez 2012 instructions Penalty for not reporting tips. 1040ez 2012 instructions   If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes or railroad retirement tax you owe on the unreported tips. 1040ez 2012 instructions (For information about these taxes, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, later. 1040ez 2012 instructions ) The penalty amount is in addition to the taxes you owe. 1040ez 2012 instructions   You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer. 1040ez 2012 instructions To do so, attach a statement to your return explaining why you did not report them. 1040ez 2012 instructions Giving your employer money for taxes. 1040ez 2012 instructions   Your regular pay may not be enough for your employer to withhold all the taxes you owe on your regular pay plus your reported tips. 1040ez 2012 instructions If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes. 1040ez 2012 instructions   If you do not give your employer enough money, your employer will apply your regular pay and any money you give in the following order. 1040ez 2012 instructions All taxes on your regular pay. 1040ez 2012 instructions Social security, Medicare, and Additional Medicare taxes or railroad retirement taxes on your reported tips. 1040ez 2012 instructions Federal, state, and local income taxes on your reported tips. 1040ez 2012 instructions    Any taxes that remain unpaid can be collected by your employer from your next paycheck. 1040ez 2012 instructions If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. 1040ez 2012 instructions See Publication 505, Tax Withholding and Estimated Tax, for more information. 1040ez 2012 instructions    Uncollected taxes. 1040ez 2012 instructions You must report on your tax return any social security and Medicare taxes or railroad retirement tax that remained uncollected at the end of 2013. 1040ez 2012 instructions These uncollected taxes will be shown on your 2013 Form W-2. 1040ez 2012 instructions See Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer under Reporting Tips on Your Tax Return, later. 1040ez 2012 instructions Reporting Tips on Your Tax Return How to report tips. 1040ez 2012 instructions    Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1. 1040ez 2012 instructions What tips to report. 1040ez 2012 instructions   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. 1040ez 2012 instructions Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. 1040ez 2012 instructions Add to the amount in box 1 only the tips you did not report to your employer. 1040ez 2012 instructions    If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer, later. 1040ez 2012 instructions    If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips, later. 1040ez 2012 instructions   If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2. 1040ez 2012 instructions Cash and charge tips you received that totaled less than $20 for any month. 1040ez 2012 instructions The value of noncash tips, such as tickets, passes, or other items of value. 1040ez 2012 instructions Example. 1040ez 2012 instructions Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2013) on June 30 and received $10,000 in wages during the year. 1040ez 2012 instructions Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. 1040ez 2012 instructions He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. 1040ez 2012 instructions Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. 1040ez 2012 instructions He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return. 1040ez 2012 instructions Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer. 1040ez 2012 instructions    If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security, Medicare, and Additional Medicare taxes on the unreported tips as additional tax on your return. 1040ez 2012 instructions To report these taxes, you must file a return even if you would not otherwise have to file. 1040ez 2012 instructions You must use Form 1040. 1040ez 2012 instructions (You cannot file Form 1040EZ or Form 1040A. 1040ez 2012 instructions )    Use Form 4137 to figure social security and Medicare taxes. 1040ez 2012 instructions Enter the tax on your return as instructed, and attach the completed Form 4137 to your return. 1040ez 2012 instructions Use Form 8959 to figure Additional Medicare Tax. 1040ez 2012 instructions    If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported tips. 1040ez 2012 instructions To get railroad retirement credit, you must report tips to your employer. 1040ez 2012 instructions Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer. 1040ez 2012 instructions   You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. 1040ez 2012 instructions For more information, see Giving your employer money for taxes , under Reporting Tips to Your Employer, earlier. 1040ez 2012 instructions   If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2013, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). 1040ez 2012 instructions You must report these amounts as additional tax on your return. 1040ez 2012 instructions Unlike the uncollected portion of the regular (1. 1040ez 2012 instructions 45%) Medicare tax, the uncollected Additional Medicare Tax is not reported in box 12 of Form W-2 with code B. 1040ez 2012 instructions    To report these uncollected taxes, you must file a return even if you would not otherwise have to file. 1040ez 2012 instructions You must report these taxes on Form 1040, line 60. 1040ez 2012 instructions See the instructions for Form 1040, line 60. 1040ez 2012 instructions (You cannot file Form 1040EZ or Form 1040A. 1040ez 2012 instructions ) Allocated Tips If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. 1040ez 2012 instructions They are not included in box 1 with your wages and reported tips. 1040ez 2012 instructions If box 8 is blank, this discussion does not apply to you. 1040ez 2012 instructions What are allocated tips. 1040ez 2012 instructions   These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. 1040ez 2012 instructions Your employer will have done this only if: You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees, and The tips you reported to your employer were less than your share of 8% of food and drink sales. 1040ez 2012 instructions No income, social security, Medicare, Additional Medicare or railroad retirement taxes are withheld on allocated tips. 1040ez 2012 instructions How were your allocated tips figured. 1040ez 2012 instructions   The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). 1040ez 2012 instructions Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. 1040ez 2012 instructions For information about the exact allocation method used, ask your employer. 1040ez 2012 instructions Must you report your allocated tips on your tax return. 1040ez 2012 instructions   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. 1040ez 2012 instructions Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. 1040ez 2012 instructions Add to the amount in box 1 only the tips you did not report to your employer. 1040ez 2012 instructions This should include any allocated tips shown in box 8 on your Form(s) W-2, unless you have adequate records to show that you received less tips in the year than the allocated figures. 1040ez 2012 instructions   See What tips to report under Reporting Tips on Your Tax Return, and Keeping a Daily Tip Record , earlier. 1040ez 2012 instructions How to report allocated tips. 1040ez 2012 instructions   Report the amount in box 1 and the allocated tips in box 8 of your Form(s) W-2 as wages on Form 1040, line 7; Form 1040NR, line 8; or Form 1040NR-EZ, line 3. 1040ez 2012 instructions (You cannot file Form 1040A or Form 1040EZ when you have allocated tips. 1040ez 2012 instructions )    Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, you must report those taxes as additional tax on your return. 1040ez 2012 instructions Complete Form 4137, and include the allocated tips on line 1 of the form. 1040ez 2012 instructions See Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier. 1040ez 2012 instructions Prev  Up  Next   Home   More Online Publications