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2010 Tax Amendment Form

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2010 Tax Amendment Form

2010 tax amendment form 1. 2010 tax amendment form   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. 2010 tax amendment form At-risk limits. 2010 tax amendment form Passive activities. 2010 tax amendment form Net operating loss. 2010 tax amendment form When Can I Deduct an Expense?Economic performance. 2010 tax amendment form Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. 2010 tax amendment form  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. 2010 tax amendment form See Optional safe harbor method under Business use of your home , later. 2010 tax amendment form Introduction This chapter covers the general rules for deducting business expenses. 2010 tax amendment form Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. 2010 tax amendment form Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. 2010 tax amendment form What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. 2010 tax amendment form An ordinary expense is one that is common and accepted in your industry. 2010 tax amendment form A necessary expense is one that is helpful and appropriate for your trade or business. 2010 tax amendment form An expense does not have to be indispensable to be considered necessary. 2010 tax amendment form Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. 2010 tax amendment form In some cases you may not be allowed to deduct the expense at all. 2010 tax amendment form Therefore, it is important to distinguish usual business expenses from expenses that include the following. 2010 tax amendment form The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. 2010 tax amendment form Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. 2010 tax amendment form Some of your business expenses may be included in figuring cost of goods sold. 2010 tax amendment form Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. 2010 tax amendment form If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. 2010 tax amendment form The following are types of expenses that go into figuring cost of goods sold. 2010 tax amendment form The cost of products or raw materials, including freight. 2010 tax amendment form Storage. 2010 tax amendment form Direct labor (including contributions to pension or annuity plans) for workers who produce the products. 2010 tax amendment form Factory overhead. 2010 tax amendment form Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. 2010 tax amendment form Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. 2010 tax amendment form This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. 2010 tax amendment form For more information, see the following sources. 2010 tax amendment form Cost of goods sold—chapter 6 of Publication 334. 2010 tax amendment form Inventories—Publication 538. 2010 tax amendment form Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. 2010 tax amendment form Capital Expenses You must capitalize, rather than deduct, some costs. 2010 tax amendment form These costs are a part of your investment in your business and are called “capital expenses. 2010 tax amendment form ” Capital expenses are considered assets in your business. 2010 tax amendment form In general, you capitalize three types of costs. 2010 tax amendment form Business start-up costs (See Tip below). 2010 tax amendment form Business assets. 2010 tax amendment form Improvements. 2010 tax amendment form You can elect to deduct or amortize certain business start-up costs. 2010 tax amendment form See chapters 7 and 8. 2010 tax amendment form Cost recovery. 2010 tax amendment form   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. 2010 tax amendment form These recovery methods allow you to deduct part of your cost each year. 2010 tax amendment form In this way, you are able to recover your capital expense. 2010 tax amendment form See Amortization (chapter 8) and Depletion (chapter 9) in this publication. 2010 tax amendment form A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. 2010 tax amendment form A greater portion of these costs can be deducted if the property is qualified disaster assistance property. 2010 tax amendment form See Publication 946 for details. 2010 tax amendment form Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. 2010 tax amendment form These costs may include expenses for advertising, travel, or wages for training employees. 2010 tax amendment form If you go into business. 2010 tax amendment form   When you go into business, treat all costs you had to get your business started as capital expenses. 2010 tax amendment form   Usually you recover costs for a particular asset through depreciation. 2010 tax amendment form Generally, you cannot recover other costs until you sell the business or otherwise go out of business. 2010 tax amendment form However, you can choose to amortize certain costs for setting up your business. 2010 tax amendment form See Starting a Business in chapter 8 for more information on business start-up costs. 2010 tax amendment form If your attempt to go into business is unsuccessful. 2010 tax amendment form   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. 2010 tax amendment form The costs you had before making a decision to acquire or begin a specific business. 2010 tax amendment form These costs are personal and nondeductible. 2010 tax amendment form They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. 2010 tax amendment form The costs you had in your attempt to acquire or begin a specific business. 2010 tax amendment form These costs are capital expenses and you can deduct them as a capital loss. 2010 tax amendment form   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. 2010 tax amendment form   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. 2010 tax amendment form You cannot take a deduction for these costs. 2010 tax amendment form You will recover the costs of these assets when you dispose of them. 2010 tax amendment form Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. 2010 tax amendment form You must fully capitalize the cost of these assets, including freight and installation charges. 2010 tax amendment form Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. 2010 tax amendment form See Regulations section 1. 2010 tax amendment form 263A-2 for information on these rules. 2010 tax amendment form Improvements Improvements are generally major expenditures. 2010 tax amendment form Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. 2010 tax amendment form The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. 2010 tax amendment form Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. 2010 tax amendment form Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. 2010 tax amendment form However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. 2010 tax amendment form Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. 2010 tax amendment form Restoration plan. 2010 tax amendment form   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. 2010 tax amendment form This applies even if some of the work would by itself be classified as repairs. 2010 tax amendment form Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. 2010 tax amendment form Motor vehicles. 2010 tax amendment form   You usually capitalize the cost of a motor vehicle you use in your business. 2010 tax amendment form You can recover its cost through annual deductions for depreciation. 2010 tax amendment form   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. 2010 tax amendment form See Publication 463. 2010 tax amendment form   Generally, repairs you make to your business vehicle are currently deductible. 2010 tax amendment form However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. 2010 tax amendment form Roads and driveways. 2010 tax amendment form    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. 2010 tax amendment form The cost of maintaining a private road on your business property is a deductible expense. 2010 tax amendment form Tools. 2010 tax amendment form   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. 2010 tax amendment form Machinery parts. 2010 tax amendment form   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. 2010 tax amendment form Heating equipment. 2010 tax amendment form   The cost of changing from one heating system to another is a capital expense. 2010 tax amendment form Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. 2010 tax amendment form However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. 2010 tax amendment form You can deduct the business part. 2010 tax amendment form For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. 2010 tax amendment form The remaining 30% is personal interest and generally is not deductible. 2010 tax amendment form See chapter 4 for information on deducting interest and the allocation rules. 2010 tax amendment form Business use of your home. 2010 tax amendment form   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. 2010 tax amendment form These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. 2010 tax amendment form   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. 2010 tax amendment form The business part of your home must be used exclusively and regularly for your trade or business. 2010 tax amendment form The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. 2010 tax amendment form   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. 2010 tax amendment form   Your home office qualifies as your principal place of business if you meet the following requirements. 2010 tax amendment form You use the office exclusively and regularly for administrative or management activities of your trade or business. 2010 tax amendment form You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. 2010 tax amendment form   If you have more than one business location, determine your principal place of business based on the following factors. 2010 tax amendment form The relative importance of the activities performed at each location. 2010 tax amendment form If the relative importance factor does not determine your principal place of business, consider the time spent at each location. 2010 tax amendment form Optional safe harbor method. 2010 tax amendment form   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. 2010 tax amendment form This method is an alternative to the calculation, allocation, and substantiation of actual expenses. 2010 tax amendment form   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. 2010 tax amendment form Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). 2010 tax amendment form You are not required to allocate these deductions between personal and business use, as is required under the regular method. 2010 tax amendment form If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. 2010 tax amendment form   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. 2010 tax amendment form All of the requirements discussed earlier under Business use of your home still apply. 2010 tax amendment form   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. 2010 tax amendment form    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. 2010 tax amendment form Business use of your car. 2010 tax amendment form   If you use your car exclusively in your business, you can deduct car expenses. 2010 tax amendment form If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. 2010 tax amendment form Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. 2010 tax amendment form   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. 2010 tax amendment form Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. 2010 tax amendment form Beginning in 2013, the standard mileage rate is 56. 2010 tax amendment form 5 cents per mile. 2010 tax amendment form   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. 2010 tax amendment form   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. 2010 tax amendment form How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. 2010 tax amendment form Recovery of amount deducted (tax benefit rule). 2010 tax amendment form   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. 2010 tax amendment form If you have a recovery in a later year, include the recovered amount in income in that year. 2010 tax amendment form However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. 2010 tax amendment form   For more information on recoveries and the tax benefit rule, see Publication 525. 2010 tax amendment form Payments in kind. 2010 tax amendment form   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. 2010 tax amendment form You cannot deduct the cost of your own labor. 2010 tax amendment form   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. 2010 tax amendment form If these costs are included in the cost of goods sold, do not deduct them again as a business expense. 2010 tax amendment form Limits on losses. 2010 tax amendment form   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. 2010 tax amendment form There may be limits on how much of the loss you can deduct. 2010 tax amendment form Not-for-profit limits. 2010 tax amendment form   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. 2010 tax amendment form See Not-for-Profit Activities , later. 2010 tax amendment form At-risk limits. 2010 tax amendment form   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. 2010 tax amendment form You are at risk in any activity for the following. 2010 tax amendment form The money and adjusted basis of property you contribute to the activity. 2010 tax amendment form Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. 2010 tax amendment form For more information, see Publication 925. 2010 tax amendment form Passive activities. 2010 tax amendment form   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. 2010 tax amendment form In general, deductions for losses from passive activities only offset income from passive activities. 2010 tax amendment form You cannot use any excess deductions to offset other income. 2010 tax amendment form In addition, passive activity credits can only offset the tax on net passive income. 2010 tax amendment form Any excess loss or credits are carried over to later years. 2010 tax amendment form Suspended passive losses are fully deductible in the year you completely dispose of the activity. 2010 tax amendment form For more information, see Publication 925. 2010 tax amendment form Net operating loss. 2010 tax amendment form   If your deductions are more than your income for the year, you may have a “net operating loss. 2010 tax amendment form ” You can use a net operating loss to lower your taxes in other years. 2010 tax amendment form See Publication 536 for more information. 2010 tax amendment form   See Publication 542 for information about net operating losses of corporations. 2010 tax amendment form When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. 2010 tax amendment form An accounting method is a set of rules used to determine when and how income and expenses are reported. 2010 tax amendment form The two basic methods are the cash method and the accrual method. 2010 tax amendment form Whichever method you choose must clearly reflect income. 2010 tax amendment form For more information on accounting methods, see Publication 538. 2010 tax amendment form Cash method. 2010 tax amendment form   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. 2010 tax amendment form Accrual method. 2010 tax amendment form   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. 2010 tax amendment form The all-events test has been met. 2010 tax amendment form The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. 2010 tax amendment form Economic performance has occurred. 2010 tax amendment form Economic performance. 2010 tax amendment form   You generally cannot deduct or capitalize a business expense until economic performance occurs. 2010 tax amendment form If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. 2010 tax amendment form If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 2010 tax amendment form Example. 2010 tax amendment form Your tax year is the calendar year. 2010 tax amendment form In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. 2010 tax amendment form You paid it by check in January 2014. 2010 tax amendment form If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. 2010 tax amendment form If you use the cash method of accounting, deduct the expense on your 2014 return. 2010 tax amendment form Prepayment. 2010 tax amendment form   You generally cannot deduct expenses in advance, even if you pay them in advance. 2010 tax amendment form This rule applies to both the cash and accrual methods. 2010 tax amendment form It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 2010 tax amendment form Example. 2010 tax amendment form In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. 2010 tax amendment form Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. 2010 tax amendment form You can deduct the rent for 2014 and 2015 on your tax returns for those years. 2010 tax amendment form Contested liability. 2010 tax amendment form   Under the cash method, you can deduct a contested liability only in the year you pay the liability. 2010 tax amendment form Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. 2010 tax amendment form S. 2010 tax amendment form possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. 2010 tax amendment form However, to take the deduction in the year of payment or transfer, you must meet certain conditions. 2010 tax amendment form See Regulations section 1. 2010 tax amendment form 461-2. 2010 tax amendment form Related person. 2010 tax amendment form   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. 2010 tax amendment form However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. 2010 tax amendment form Your deduction is allowed when the amount is includible in income by the related cash method payee. 2010 tax amendment form See Related Persons in Publication 538. 2010 tax amendment form Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. 2010 tax amendment form Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. 2010 tax amendment form The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. 2010 tax amendment form It does not apply to corporations other than S corporations. 2010 tax amendment form In determining whether you are carrying on an activity for profit, several factors are taken into account. 2010 tax amendment form No one factor alone is decisive. 2010 tax amendment form Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. 2010 tax amendment form Presumption of profit. 2010 tax amendment form   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. 2010 tax amendment form Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. 2010 tax amendment form The activity must be substantially the same for each year within this period. 2010 tax amendment form You have a profit when the gross income from an activity exceeds the deductions. 2010 tax amendment form   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. 2010 tax amendment form   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. 2010 tax amendment form This means the limits discussed here will not apply. 2010 tax amendment form You can take all your business deductions from the activity, even for the years that you have a loss. 2010 tax amendment form You can rely on this presumption unless the IRS later shows it to be invalid. 2010 tax amendment form Using the presumption later. 2010 tax amendment form   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. 2010 tax amendment form   You can elect to do this by filing Form 5213. 2010 tax amendment form Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. 2010 tax amendment form   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. 2010 tax amendment form Accordingly, it will not restrict your deductions. 2010 tax amendment form Rather, you will gain time to earn a profit in the required number of years. 2010 tax amendment form If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. 2010 tax amendment form If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. 2010 tax amendment form   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. 2010 tax amendment form The period is extended only for deductions of the activity and any related deductions that might be affected. 2010 tax amendment form    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. 2010 tax amendment form Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. 2010 tax amendment form Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. 2010 tax amendment form You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. 2010 tax amendment form However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. 2010 tax amendment form Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. 2010 tax amendment form If you are an individual, these deductions may be taken only if you itemize. 2010 tax amendment form These deductions may be taken on Schedule A (Form 1040). 2010 tax amendment form Category 1. 2010 tax amendment form   Deductions you can take for personal as well as for business activities are allowed in full. 2010 tax amendment form For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. 2010 tax amendment form Deduct them on the appropriate lines of Schedule A (Form 1040). 2010 tax amendment form For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). 2010 tax amendment form The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. 2010 tax amendment form The reduction amount returns to $100 for tax years beginning after December 31, 2009. 2010 tax amendment form See Publication 547 for more information on casualty losses. 2010 tax amendment form For the limits that apply to home mortgage interest, see Publication 936. 2010 tax amendment form Category 2. 2010 tax amendment form   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. 2010 tax amendment form Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. 2010 tax amendment form Category 3. 2010 tax amendment form   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. 2010 tax amendment form Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. 2010 tax amendment form Where more than one asset is involved, allocate depreciation and these other deductions proportionally. 2010 tax amendment form    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). 2010 tax amendment form They are subject to the 2%-of-adjusted-gross-income limit. 2010 tax amendment form See Publication 529 for information on this limit. 2010 tax amendment form Example. 2010 tax amendment form Adriana is engaged in a not-for-profit activity. 2010 tax amendment form The income and expenses of the activity are as follows. 2010 tax amendment form Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. 2010 tax amendment form The limit is reached in category (3), as follows. 2010 tax amendment form Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. 2010 tax amendment form $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. 2010 tax amendment form Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. 2010 tax amendment form The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). 2010 tax amendment form Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. 2010 tax amendment form Partnerships and S corporations. 2010 tax amendment form   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. 2010 tax amendment form They are reflected in the individual shareholder's or partner's distributive shares. 2010 tax amendment form More than one activity. 2010 tax amendment form   If you have several undertakings, each may be a separate activity or several undertakings may be combined. 2010 tax amendment form The following are the most significant facts and circumstances in making this determination. 2010 tax amendment form The degree of organizational and economic interrelationship of various undertakings. 2010 tax amendment form The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. 2010 tax amendment form The similarity of the undertakings. 2010 tax amendment form   The IRS will generally accept your characterization if it is supported by facts and circumstances. 2010 tax amendment form    If you are carrying on two or more different activities, keep the deductions and income from each one separate. 2010 tax amendment form Figure separately whether each is a not-for-profit activity. 2010 tax amendment form Then figure the limit on deductions and losses separately for each activity that is not for profit. 2010 tax amendment form Prev  Up  Next   Home   More Online Publications
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Compliance & Enforcement News

Offshore Tax-Avoidance and IRS Compliance Efforts
The IRS continues to uncover abusive tax-avoidance schemes involving offshore activity. Find information here pertaining to Union Bank of Switzerland (UBS).

Fiscal Year 2013 Enforcement and Service Results
The Fiscal Year 2013 Enforcement and Service Results provide the dollars collected from the examination (audit) and collection functions of the IRS. The results also tally various taxpayer assistance program results.

FY 2011 Enforcement Results
FY 2011 IRS Enforcement and Service Results.

FY 2009 Enforcement Results
The IRS FY 2009 Enforcement and Service Results detail the agency's audit, collection and taxpayer service efforts.

Tips for Choosing a Tax Return Preparer
FS-2012-5, January 2012 — If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely.

IRS Releases New Tax Gap Estimates; Compliance Rates Remain Statistically Unchanged From Previous Study
IR-2012-4, Jan. 6, 2012 — The Internal Revenue Service today released a new set of tax gap estimates for tax year 2006. The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time.

IRS Office of Professional Responsibility Prevails on Appeal Against CPA
IR-2011-48, April 25, 2011 — IRS Office of Professional Responsibility prevailed in an agency appeal against a Florida certified public accountant, according to the published Decision on Appeal.

IRS Begins Enforcement of New Return Preparer Rules
IR-2011-47, April 25, 2011 — The IRS is taking steps to stop tax preparers with criminal tax convictions or permanent injunctions from preparing tax returns.

How to Choose a Tax Return Preparer and Avoid Preparer Fraud
FS-2010-03, January 2010 — IRS fact sheet on how to choose a tax return preparer and avoid preparer fraud.

How to Choose a Tax Preparer and Avoid Preparer Fraud
FS-2009-7, January 2009 — Taxpayers should put as much care in choosing a preparer as they would a doctor or lawyer.

Tax Return Preparer Fraud
FS-2008-10, January 2008 — Get hints from IRS on how to choose a reputable tax preparer.

Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off 2007 “Dirty Dozen” Tax Scams
IR-2007-37, Feb. 20, 2007 –– Also new to the "Dirty Dozen" are abuses involving the American Indian Employment Credit, domestic shell companies and structured entities.

IRS Moves to Prevent Telephone Tax Refund Abuse; Help Taxpayers Make Accurate Requests
IR-2007-27, Feb. 7, 2007 — The Internal Revenue Service announced today it is taking additional steps to prevent abuse by tax preparers and help taxpayers make accurate requests for the one-time telephone excise tax refund.

Statement of IRS Commissioner Mark W. Everson on the FY 2008 Budget
Feb. 5, 2007 — The president’s 2008 budget request for the IRS, together with the accompanying legislative proposals concerning tax administration... will do much to promote compliance with our tax law.

Tax Return Preparer Fraud
FS-2007-12, January 2007 — Taxpayers should use caution when engaging professional tax return preparers and learn the warning signs of potential fraud.

IRS Accepts Settlement Offer in Largest Transfer Pricing Dispute
IR-2006-142, Sept. 11, 2006 — IRS has reached a satisfactory settlement in a transfer pricing dispute with Glaxo SmithKline in the largest tax dispute in the IRS's history.

IRS and States Join Forces to Combat Money Laundering
IR-2006-70, April 27, 2006 — Thirty-three states and Puerto Rico have signed agreements with the IRS to share Bank Secrecy Act information on money services businesses.

IRS Debunks Frivolous Arguments on Paying Taxes
IR-2006-45, March 16, 2006 — The IRS today issued updated guidance describing and rebutting frivolous arguments taxpayers should avoid when filing their tax returns

IRS Updates Tax Gap Estimates
IR-2006-28, Feb. 14, 2006 — The revised tax gap estimate is $345 billion for tax year 2001. The tax gap is the difference between what taxpayers timely and voluntarily should have paid and what they did pay.

IRS Improves Enforcement and Services in 2005
Prepared remarks by IRS Commissioner Mark W. Everson reqarding new Fiscal Year 2005 data that show improvements in enforcement and services to taxpayers.

IRS Launches Abusive Transaction Settlement Initiative
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KPMG to Pay $456 Million for Criminal Violations
IR-2005-83, Aug. 29, 2005 — KPMG LLP (KPMG) has admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution and penalties as part of an agreement to defer prosecution of the firm, the Justice Department and the Internal Revenue Service announced today.

Robust Response for Executive Stock Option Initiative; Son of Boss Settlement Heading for $4 Billion
IR-2005-72, July 11, 2005 — IRS officials announced today that they received a strong turnout for the executive stock option settlement initiative launched in February.

IRS Collects $3.2 Billion from Son of Boss; Final Figure Should Top $3.5 Billion
IR-2005-37 — Abusive transaction aggressively marketed to wealthy individuals. Settlement required taxpayers to concede 100 percent of claimed tax losses.

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters
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States See Son of Boss Benefits; Tax Administrators Praise Efforts
FS-2005-13 –– States are beginning to see results from the IRS Son of Boss settlement initiative. California and New York have also conducted compliance initiatives.

Understanding the Tax Gap
FS-2005-14 — The tax gap measures the extent to which taxpayers do not file their tax returns and pay the correct tax on time.

Report on IRS Review of Alleged Political Campaign Intervention 2005
The Treasury Inspector General reports that IRS properly ran its program for investigating claims of inappropriate political campaign actions by tax-exempt organizations.

Page Last Reviewed or Updated: 28-Mar-2014

The 2010 Tax Amendment Form

2010 tax amendment form 2. 2010 tax amendment form   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. 2010 tax amendment form This chapter will help you determine the source of different types of income you may receive during the tax year. 2010 tax amendment form This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. 2010 tax amendment form Topics - This chapter discusses: Income source rules, and Community income. 2010 tax amendment form Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. 2010 tax amendment form S. 2010 tax amendment form citizen. 2010 tax amendment form If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. 2010 tax amendment form S. 2010 tax amendment form tax return. 2010 tax amendment form You must report these amounts from sources within and outside the United States. 2010 tax amendment form Nonresident Aliens A nonresident alien usually is subject to U. 2010 tax amendment form S. 2010 tax amendment form income tax only on U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form Under limited circumstances, certain foreign source income is subject to U. 2010 tax amendment form S. 2010 tax amendment form tax. 2010 tax amendment form See Foreign Income in chapter 4. 2010 tax amendment form The general rules for determining U. 2010 tax amendment form S. 2010 tax amendment form source income that apply to most nonresident aliens are shown in Table 2-1. 2010 tax amendment form The following discussions cover the general rules as well as the exceptions to these rules. 2010 tax amendment form Not all items of U. 2010 tax amendment form S. 2010 tax amendment form source income are taxable. 2010 tax amendment form See chapter 3. 2010 tax amendment form Interest Income Generally, U. 2010 tax amendment form S. 2010 tax amendment form source interest income includes the following items. 2010 tax amendment form Interest on bonds, notes, or other interest-bearing obligations of U. 2010 tax amendment form S. 2010 tax amendment form residents or domestic corporations. 2010 tax amendment form Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. 2010 tax amendment form S. 2010 tax amendment form trade or business at any time during the tax year. 2010 tax amendment form Original issue discount. 2010 tax amendment form Interest from a state, the District of Columbia, or the U. 2010 tax amendment form S. 2010 tax amendment form Government. 2010 tax amendment form The place or manner of payment is immaterial in determining the source of the income. 2010 tax amendment form A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. 2010 tax amendment form Exceptions. 2010 tax amendment form   U. 2010 tax amendment form S. 2010 tax amendment form source interest income does not include the following items. 2010 tax amendment form Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. 2010 tax amendment form S. 2010 tax amendment form possession. 2010 tax amendment form However, the interest will be considered U. 2010 tax amendment form S. 2010 tax amendment form source interest income if either of the following apply. 2010 tax amendment form The recipient of the interest is related to the resident alien or domestic corporation. 2010 tax amendment form See section 954(d)(3) for the definition of related person. 2010 tax amendment form The terms of the obligation are significantly modified after August 9, 2010. 2010 tax amendment form Any extension of the term of the obligation is considered a significant modification. 2010 tax amendment form Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. 2010 tax amendment form Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. 2010 tax amendment form Dividends In most cases, dividend income received from domestic corporations is U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form Dividend income from foreign corporations is usually foreign source income. 2010 tax amendment form Exceptions to both of these rules are discussed below. 2010 tax amendment form A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. 2010 tax amendment form Dividend equivalent payments. 2010 tax amendment form   U. 2010 tax amendment form S. 2010 tax amendment form source dividends also include all dividend equivalent payments. 2010 tax amendment form Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. 2010 tax amendment form S. 2010 tax amendment form sources. 2010 tax amendment form    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. 2010 tax amendment form You can view this regulation at www. 2010 tax amendment form irs. 2010 tax amendment form gov/irb/2013-52_IRB/ar08. 2010 tax amendment form html. 2010 tax amendment form First exception. 2010 tax amendment form   Dividends received from a domestic corporation are not U. 2010 tax amendment form S. 2010 tax amendment form source income if the corporation elects to take the American Samoa economic development credit. 2010 tax amendment form Second exception. 2010 tax amendment form   Part of the dividends received from a foreign corporation is U. 2010 tax amendment form S. 2010 tax amendment form source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. 2010 tax amendment form If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. 2010 tax amendment form Determine the part that is U. 2010 tax amendment form S. 2010 tax amendment form source income by multiplying the dividend by the following fraction. 2010 tax amendment form   Foreign corporation's gross income connected with a U. 2010 tax amendment form S. 2010 tax amendment form trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form They must be paid by a noncorporate resident or U. 2010 tax amendment form S. 2010 tax amendment form corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. 2010 tax amendment form S. 2010 tax amendment form trade or business. 2010 tax amendment form For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). 2010 tax amendment form Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. 2010 tax amendment form The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. 2010 tax amendment form If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. 2010 tax amendment form Compensation (other than certain fringe benefits) is sourced on a time basis. 2010 tax amendment form Certain fringe benefits (such as housing and education) are sourced on a geographical basis. 2010 tax amendment form Or, you may be permitted to use an alternative basis to determine the source of compensation. 2010 tax amendment form See Alternative Basis , later. 2010 tax amendment form Multi-level marketing. 2010 tax amendment form   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. 2010 tax amendment form Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. 2010 tax amendment form The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. 2010 tax amendment form Self-employed individuals. 2010 tax amendment form   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. 2010 tax amendment form In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. 2010 tax amendment form Time Basis Use a time basis to figure your U. 2010 tax amendment form S. 2010 tax amendment form source compensation (other than the fringe benefits discussed later). 2010 tax amendment form Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. 2010 tax amendment form The time period for which the compensation is made does not have to be a year. 2010 tax amendment form Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. 2010 tax amendment form Example 1. 2010 tax amendment form Christina Brooks, a resident of the Netherlands, worked 240 days for a U. 2010 tax amendment form S. 2010 tax amendment form company during the tax year. 2010 tax amendment form She received $80,000 in compensation. 2010 tax amendment form None of it was for fringe benefits. 2010 tax amendment form Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. 2010 tax amendment form Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form Example 2. 2010 tax amendment form Rob Waters, a resident of South Africa, is employed by a corporation. 2010 tax amendment form His annual salary is $100,000. 2010 tax amendment form None of it is for fringe benefits. 2010 tax amendment form During the first quarter of the year he worked entirely within the United States. 2010 tax amendment form On April 1, Rob was transferred to Singapore for the remainder of the year. 2010 tax amendment form Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. 2010 tax amendment form Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. 2010 tax amendment form 25 × $100,000). 2010 tax amendment form All of it is U. 2010 tax amendment form S. 2010 tax amendment form source income because he worked entirely within the United States during that quarter. 2010 tax amendment form The remaining $75,000 is attributable to the last three quarters of the year. 2010 tax amendment form During those quarters, he worked 150 days in Singapore and 30 days in the United States. 2010 tax amendment form His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. 2010 tax amendment form Of this $75,000, $12,500 ($75,000 × 30/180) is U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form Multi-year compensation. 2010 tax amendment form   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. 2010 tax amendment form Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. 2010 tax amendment form   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. 2010 tax amendment form For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. 2010 tax amendment form   The amount of compensation treated as from U. 2010 tax amendment form S. 2010 tax amendment form sources is figured by multiplying the total multi-year compensation by a fraction. 2010 tax amendment form The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. 2010 tax amendment form The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. 2010 tax amendment form Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. 2010 tax amendment form Housing. 2010 tax amendment form Education. 2010 tax amendment form Local transportation. 2010 tax amendment form Tax reimbursement. 2010 tax amendment form Hazardous or hardship duty pay as defined in Regulations section 1. 2010 tax amendment form 861-4(b)(2)(ii)(D)(5). 2010 tax amendment form Moving expense reimbursement. 2010 tax amendment form The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. 2010 tax amendment form Principal place of work. 2010 tax amendment form   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. 2010 tax amendment form Your principal place of work is usually the place where you spend most of your working time. 2010 tax amendment form This could be your office, plant, store, shop, or other location. 2010 tax amendment form If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. 2010 tax amendment form   If you have more than one job at any time, your main job location depends on the facts in each case. 2010 tax amendment form The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. 2010 tax amendment form Housing. 2010 tax amendment form   The source of a housing fringe benefit is determined based on the location of your principal place of work. 2010 tax amendment form A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. 2010 tax amendment form Rent. 2010 tax amendment form Utilities (except telephone charges). 2010 tax amendment form Real and personal property insurance. 2010 tax amendment form Occupancy taxes not deductible under section 164 or 216(a). 2010 tax amendment form Nonrefundable fees for securing a leasehold. 2010 tax amendment form Rental of furniture and accessories. 2010 tax amendment form Household repairs. 2010 tax amendment form Residential parking. 2010 tax amendment form Fair rental value of housing provided in kind by your employer. 2010 tax amendment form   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. 2010 tax amendment form ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. 2010 tax amendment form Education. 2010 tax amendment form   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. 2010 tax amendment form An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. 2010 tax amendment form Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. 2010 tax amendment form Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. 2010 tax amendment form Local transportation. 2010 tax amendment form   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. 2010 tax amendment form Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. 2010 tax amendment form The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. 2010 tax amendment form Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. 2010 tax amendment form Tax reimbursement. 2010 tax amendment form   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. 2010 tax amendment form Moving expense reimbursement. 2010 tax amendment form   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. 2010 tax amendment form However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. 2010 tax amendment form Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. 2010 tax amendment form The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. 2010 tax amendment form It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. 2010 tax amendment form Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. 2010 tax amendment form If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. 2010 tax amendment form Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. 2010 tax amendment form Your name and social security number (written across the top of the statement). 2010 tax amendment form The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. 2010 tax amendment form For each item in (2), the alternative basis of allocation of source used. 2010 tax amendment form For each item in (2), a computation showing how the alternative allocation was computed. 2010 tax amendment form A comparison of the dollar amount of the U. 2010 tax amendment form S. 2010 tax amendment form compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. 2010 tax amendment form Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. 2010 tax amendment form This is true whether the vessel or aircraft is owned, hired, or leased. 2010 tax amendment form The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. 2010 tax amendment form All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. 2010 tax amendment form If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. 2010 tax amendment form For transportation income from personal services, 50% of the income is U. 2010 tax amendment form S. 2010 tax amendment form source income if the transportation is between the United States and a U. 2010 tax amendment form S. 2010 tax amendment form possession. 2010 tax amendment form For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. 2010 tax amendment form For information on how U. 2010 tax amendment form S. 2010 tax amendment form source transportation income is taxed, see chapter 4. 2010 tax amendment form Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. 2010 tax amendment form However, see Activities to be performed outside the United States , later. 2010 tax amendment form For example, payments for research or study in the United States made by the United States, a noncorporate U. 2010 tax amendment form S. 2010 tax amendment form resident, or a domestic corporation, are from U. 2010 tax amendment form S. 2010 tax amendment form sources. 2010 tax amendment form Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. 2010 tax amendment form S. 2010 tax amendment form agent. 2010 tax amendment form Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. 2010 tax amendment form Activities to be performed outside the United States. 2010 tax amendment form   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form    These rules do not apply to amounts paid as salary or other compensation for services. 2010 tax amendment form See Personal Services, earlier, for the source rules that apply. 2010 tax amendment form Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. 2010 tax amendment form S. 2010 tax amendment form sources. 2010 tax amendment form That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. 2010 tax amendment form This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). 2010 tax amendment form If you performed services as an employee of the United States, you may receive a distribution from the U. 2010 tax amendment form S. 2010 tax amendment form Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. 2010 tax amendment form Your U. 2010 tax amendment form S. 2010 tax amendment form source income is the otherwise taxable amount of the distribution that is attributable to your total U. 2010 tax amendment form S. 2010 tax amendment form Government basic pay other than tax-exempt pay for services performed outside the United States. 2010 tax amendment form Rents or Royalties Your U. 2010 tax amendment form S. 2010 tax amendment form source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. 2010 tax amendment form U. 2010 tax amendment form S. 2010 tax amendment form source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. 2010 tax amendment form Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. 2010 tax amendment form Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. 2010 tax amendment form Natural resources. 2010 tax amendment form   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. 2010 tax amendment form For information on determining that part, see section 1. 2010 tax amendment form 863-1(b) of the regulations. 2010 tax amendment form Table 2-1. 2010 tax amendment form Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. 2010 tax amendment form S. 2010 tax amendment form or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. 2010 tax amendment form Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. 2010 tax amendment form For more information, see section 1. 2010 tax amendment form 863-1(b) of the regulations. 2010 tax amendment form *Exceptions include: a) Dividends paid by a U. 2010 tax amendment form S. 2010 tax amendment form corporation are foreign source if the corporation elects the  American Samoa economic development credit. 2010 tax amendment form  b) Part of a dividend paid by a foreign corporation is U. 2010 tax amendment form S. 2010 tax amendment form source if at least 25% of the  corporation's gross income is effectively connected with a U. 2010 tax amendment form S. 2010 tax amendment form trade or business for the  3 tax years before the year in which the dividends are declared. 2010 tax amendment form Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. 2010 tax amendment form Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. 2010 tax amendment form If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. 2010 tax amendment form Tax home. 2010 tax amendment form   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. 2010 tax amendment form Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. 2010 tax amendment form If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. 2010 tax amendment form If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. 2010 tax amendment form Inventory property. 2010 tax amendment form   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. 2010 tax amendment form Income from the sale of inventory that you purchased is sourced where the property is sold. 2010 tax amendment form Generally, this is where title to the property passes to the buyer. 2010 tax amendment form For example, income from the sale of inventory in the United States is U. 2010 tax amendment form S. 2010 tax amendment form source income, whether you purchased it in the United States or in a foreign country. 2010 tax amendment form   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. 2010 tax amendment form For information on making this allocation, see section 1. 2010 tax amendment form 863-3 of the regulations. 2010 tax amendment form   These rules apply even if your tax home is not in the United States. 2010 tax amendment form Depreciable property. 2010 tax amendment form   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. 2010 tax amendment form You allocate this part of the gain to sources in the United States based on the ratio of U. 2010 tax amendment form S. 2010 tax amendment form depreciation adjustments to total depreciation adjustments. 2010 tax amendment form The rest of this part of the gain is considered to be from sources outside the United States. 2010 tax amendment form   For this purpose, “U. 2010 tax amendment form S. 2010 tax amendment form depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. 2010 tax amendment form S. 2010 tax amendment form sources. 2010 tax amendment form However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. 2010 tax amendment form S. 2010 tax amendment form depreciation adjustments. 2010 tax amendment form But there are some exceptions for certain transportation, communications, and other property used internationally. 2010 tax amendment form   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. 2010 tax amendment form   A loss is sourced in the same way as the depreciation deductions were sourced. 2010 tax amendment form However, if the property was used predominantly in the United States, the entire loss reduces U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. 2010 tax amendment form Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. 2010 tax amendment form The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. 2010 tax amendment form A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. 2010 tax amendment form Intangible property. 2010 tax amendment form   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. 2010 tax amendment form The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. 2010 tax amendment form This is the same as the source rule for gain from the sale of depreciable property. 2010 tax amendment form See Depreciable property , earlier, for details on how to apply this rule. 2010 tax amendment form   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. 2010 tax amendment form If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. 2010 tax amendment form If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. 2010 tax amendment form Sales through offices or fixed places of business. 2010 tax amendment form   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. 2010 tax amendment form   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. 2010 tax amendment form S. 2010 tax amendment form source income. 2010 tax amendment form The income is treated as U. 2010 tax amendment form S. 2010 tax amendment form source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. 2010 tax amendment form This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. 2010 tax amendment form Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. 2010 tax amendment form S. 2010 tax amendment form state, or a U. 2010 tax amendment form S. 2010 tax amendment form possession, you generally must follow those laws to determine the income of yourself and your spouse for U. 2010 tax amendment form S. 2010 tax amendment form tax purposes. 2010 tax amendment form But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. 2010 tax amendment form S. 2010 tax amendment form citizen or resident and you do not both choose to be treated as U. 2010 tax amendment form S. 2010 tax amendment form residents as explained in chapter 1. 2010 tax amendment form In these cases, you and your spouse must report community income as explained later. 2010 tax amendment form Earned income. 2010 tax amendment form   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. 2010 tax amendment form That spouse must report all of it on his or her separate return. 2010 tax amendment form Trade or business income. 2010 tax amendment form   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. 2010 tax amendment form That spouse must report all of it on his or her separate return. 2010 tax amendment form Partnership income (or loss). 2010 tax amendment form   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. 2010 tax amendment form The partner must report all of it on his or her separate return. 2010 tax amendment form Separate property income. 2010 tax amendment form   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. 2010 tax amendment form That spouse must report all of it on his or her separate return. 2010 tax amendment form Use the appropriate community property law to determine what is separate property. 2010 tax amendment form Other community income. 2010 tax amendment form   All other community income is treated as provided by the applicable community property laws. 2010 tax amendment form Prev  Up  Next   Home   More Online Publications