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2010 Tax Forms Irs

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2010 Tax Forms Irs

2010 tax forms irs 7. 2010 tax forms irs   Costs You Can Deduct or Capitalize Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Carrying Charges Research and Experimental CostsProduct. 2010 tax forms irs Costs not included. 2010 tax forms irs Intangible Drilling Costs Exploration CostsPartnerships and S corporations. 2010 tax forms irs Development Costs Circulation Costs Business Start-Up and Organizational Costs Reforestation Costs Retired Asset Removal Costs Barrier Removal CostsOther barrier removals. 2010 tax forms irs Film and Television Production Costs What's New Film and television productions costs. 2010 tax forms irs  The election to expense film and television production costs does not apply to productions that begin after December 31, 2013. 2010 tax forms irs See Film and Television Production Costs , later. 2010 tax forms irs Introduction This chapter discusses costs you can elect to deduct or capitalize. 2010 tax forms irs You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it. 2010 tax forms irs If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. 2010 tax forms irs When you capitalize a cost, you add it to the basis of property to which it relates. 2010 tax forms irs A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. 2010 tax forms irs Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs. 2010 tax forms irs You may be subject to the alternative minimum tax (AMT) if you deduct research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs. 2010 tax forms irs For more information on the alternative minimum tax, see the instructions for the following forms. 2010 tax forms irs Form 6251, Alternative Minimum Tax—Individuals. 2010 tax forms irs Form 4626, Alternative Minimum Tax—Corporations. 2010 tax forms irs Topics - This chapter discusses: Carrying charges Research and experimental costs Intangible drilling costs Exploration costs Development costs Circulation costs Qualified disaster expenses Business start-up and organizational costs Reforestation costs Retired asset removal costs Barrier removal costs Film and television production costs Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 3468 Investment Credit 8826 Disabled Access Credit See chapter 12 for information about getting publications and forms. 2010 tax forms irs Carrying Charges Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. 2010 tax forms irs Certain carrying charges must be capitalized under the uniform capitalization rules. 2010 tax forms irs (For information on capitalization of interest, see chapter 4 . 2010 tax forms irs ) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible. 2010 tax forms irs You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. 2010 tax forms irs For unimproved and unproductive real property, your election is good for only 1 year. 2010 tax forms irs You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. 2010 tax forms irs For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. 2010 tax forms irs For personal property, your election is effective until the date you install or first use it, whichever is later. 2010 tax forms irs How to make the election. 2010 tax forms irs   To make the election to capitalize a carrying charge, attach a statement to your original tax return for the year the election is to be effective indicating which charges you are electing to capitalize. 2010 tax forms irs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 tax forms irs Attach the statement to the amended return and write “Filed pursuant to section 301. 2010 tax forms irs 9100-2” on the statement. 2010 tax forms irs File the amended return at the same address you filed the original return. 2010 tax forms irs Research and Experimental Costs The costs of research and experimentation are generally capital expenses. 2010 tax forms irs However, you can elect to deduct these costs as a current business expense. 2010 tax forms irs Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change. 2010 tax forms irs If you meet certain requirements, you may elect to defer and amortize research and experimental costs. 2010 tax forms irs For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8. 2010 tax forms irs Research and experimental costs defined. 2010 tax forms irs   Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. 2010 tax forms irs Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. 2010 tax forms irs Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement. 2010 tax forms irs      The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. 2010 tax forms irs However, costs paid or incurred to obtain another's patent are not research and experimental costs. 2010 tax forms irs Product. 2010 tax forms irs   The term “product” includes any of the following items. 2010 tax forms irs Formula. 2010 tax forms irs Invention. 2010 tax forms irs Patent. 2010 tax forms irs Pilot model. 2010 tax forms irs Process. 2010 tax forms irs Technique. 2010 tax forms irs Property similar to the items listed above. 2010 tax forms irs It also includes products used by you in your trade or business or held for sale, lease, or license. 2010 tax forms irs Costs not included. 2010 tax forms irs   Research and experimental costs do not include expenses for any of the following activities. 2010 tax forms irs Advertising or promotions. 2010 tax forms irs Consumer surveys. 2010 tax forms irs Efficiency surveys. 2010 tax forms irs Management studies. 2010 tax forms irs Quality control testing. 2010 tax forms irs Research in connection with literary, historical, or similar projects. 2010 tax forms irs The acquisition of another's patent, model, production, or process. 2010 tax forms irs When and how to elect. 2010 tax forms irs   You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. 2010 tax forms irs If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS. 2010 tax forms irs Deducting or Amortizing Research and Experimentation Costs IF you . 2010 tax forms irs . 2010 tax forms irs . 2010 tax forms irs THEN . 2010 tax forms irs . 2010 tax forms irs . 2010 tax forms irs Elect to deduct research and experimental costs as a current business expense Deduct all research and experimental costs in the first year you pay or incur the costs and all later years. 2010 tax forms irs Do not deduct research and experimental costs as a current business expense If you meet the requirements, amortize them over at least 60 months, starting with the month you first receive an economic benefit from the research. 2010 tax forms irs See Research and Experimental Costs in chapter 8. 2010 tax forms irs Research credit. 2010 tax forms irs   If you pay or incur qualified research expenses, you may be able to take the research credit. 2010 tax forms irs For more information see Form 6765, Credit for Increasing Research Activities and its instructions. 2010 tax forms irs Intangible Drilling Costs The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. 2010 tax forms irs You can usually recover them through depreciation or depletion. 2010 tax forms irs However, you can elect to deduct intangible drilling costs (IDCs) as a current business expense. 2010 tax forms irs These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. 2010 tax forms irs You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water. 2010 tax forms irs You can elect to deduct only the costs of items with no salvage value. 2010 tax forms irs These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. 2010 tax forms irs Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. 2010 tax forms irs However, see Amounts paid to contractor that must be capitalized , later. 2010 tax forms irs You can also elect to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. 2010 tax forms irs It does not matter whether there is any intent to produce hydrocarbons. 2010 tax forms irs If you do not elect to deduct your IDCs as a current business expense, you can elect to deduct them over the 60-month period beginning with the month they were paid or incurred. 2010 tax forms irs Amounts paid to contractor that must be capitalized. 2010 tax forms irs   Amounts paid to a contractor must be capitalized if they are either: Amounts properly allocable to the cost of depreciable property, or Amounts paid only out of production or proceeds from production if these amounts are depletable income to the recipient. 2010 tax forms irs How to make the election. 2010 tax forms irs   You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. 2010 tax forms irs No formal statement is required. 2010 tax forms irs If you file Schedule C (Form 1040), enter these costs under “Other expenses. 2010 tax forms irs ”   For oil and gas wells, your election is binding for the year it is made and for all later years. 2010 tax forms irs For geothermal wells, your election can be revoked by the filing of an amended return on which you do not take the deduction. 2010 tax forms irs You can file the amended return for the year up to the normal time of expiration for filing a claim for credit or refund, generally, within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later. 2010 tax forms irs Energy credit for costs of geothermal wells. 2010 tax forms irs   If you capitalize the drilling and development costs of geothermal wells that you place in service during the tax year, you may be able to claim a business energy credit. 2010 tax forms irs See the Instructions for Form 3468 for more information. 2010 tax forms irs Nonproductive well. 2010 tax forms irs   If you capitalize your IDCs, you have another option if the well is nonproductive. 2010 tax forms irs You can deduct the IDCs of the nonproductive well as an ordinary loss. 2010 tax forms irs You must indicate and clearly state your election on your tax return for the year the well is completed. 2010 tax forms irs Once made, the election for oil and gas wells is binding for all later years. 2010 tax forms irs You can revoke your election for a geothermal well by filing an amended return that does not claim the loss. 2010 tax forms irs Costs incurred outside the United States. 2010 tax forms irs   You cannot deduct as a current business expense all the IDCs paid or incurred for an oil, gas, or geothermal well located outside the United States. 2010 tax forms irs However, you can elect to include the costs in the adjusted basis of the well to figure depletion or depreciation. 2010 tax forms irs If you do not make this election, you can deduct the costs over the 10-year period beginning with the tax year in which you paid or incurred them. 2010 tax forms irs These rules do not apply to a nonproductive well. 2010 tax forms irs Exploration Costs The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. 2010 tax forms irs You recover these costs through depletion as the mineral is removed from the ground. 2010 tax forms irs However, you can elect to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil and gas wells). 2010 tax forms irs How to make the election. 2010 tax forms irs   You elect to deduct exploration costs by taking the deduction on your income tax return, or on an amended income tax return, for the first tax year for which you wish to deduct the costs paid or incurred during the tax year. 2010 tax forms irs Your return must adequately describe and identify each property or mine, and clearly state how much is being deducted for each one. 2010 tax forms irs The election applies to the tax year you make this election and all later tax years. 2010 tax forms irs Partnerships and S corporations. 2010 tax forms irs   Each partner, not the partnership, elects whether to capitalize or to deduct that partner's share of exploration costs. 2010 tax forms irs Each shareholder, not the S corporation, elects whether to capitalize or to deduct that shareholder's share of exploration costs. 2010 tax forms irs Reduced corporate deductions for exploration costs. 2010 tax forms irs   A corporation (other than an S corporation) can deduct only 70% of its domestic exploration costs. 2010 tax forms irs It must capitalize the remaining 30% of costs and amortize them over the 60-month period starting with the month the exploration costs are paid or incurred. 2010 tax forms irs A corporation may also elect to capitalize and amortize mining exploration costs over a 10-year period. 2010 tax forms irs For more information on this method of amortization, see Internal Revenue Code section 59(e). 2010 tax forms irs   The 30% the corporation capitalizes cannot be added to its basis in the property to figure cost depletion. 2010 tax forms irs However, the amount amortized is treated as additional depreciation and is subject to recapture as ordinary income on a disposition of the property. 2010 tax forms irs See Section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. 2010 tax forms irs   These rules also apply to the deduction of development costs by corporations. 2010 tax forms irs See Development Costs , later. 2010 tax forms irs Recapture of exploration expenses. 2010 tax forms irs   When your mine reaches the producing stage, you must recapture any exploration costs you elected to deduct. 2010 tax forms irs Use either of the following methods. 2010 tax forms irs Method 1—Include the deducted costs in gross income for the tax year the mine reaches the producing stage. 2010 tax forms irs Your election must be clearly indicated on the return. 2010 tax forms irs Increase your adjusted basis in the mine by the amount included in income. 2010 tax forms irs Generally, you must elect this recapture method by the due date (including extensions) of your return. 2010 tax forms irs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 tax forms irs Make the election on your amended return and write “Filed pursuant to section 301. 2010 tax forms irs 9100-2” on the form where you are including the income. 2010 tax forms irs File the amended return at the same address you filed the original return. 2010 tax forms irs Method 2—Do not claim any depletion deduction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. 2010 tax forms irs   You also must recapture deducted exploration costs if you receive a bonus or royalty from mine property before it reaches the producing stage. 2010 tax forms irs Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. 2010 tax forms irs   Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income. 2010 tax forms irs Under these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. 2010 tax forms irs If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your adjusted exploration costs. 2010 tax forms irs Foreign exploration costs. 2010 tax forms irs   If you pay or incur exploration costs for a mine or other natural deposit located outside the United States, you cannot deduct all the costs in the current year. 2010 tax forms irs You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjusted basis of the mineral property to figure cost depletion. 2010 tax forms irs (Cost depletion is discussed in chapter 9 . 2010 tax forms irs ) If you do not make this election, you must deduct the costs over the 10-year period beginning with the tax year in which you pay or incur them. 2010 tax forms irs These rules also apply to foreign development costs. 2010 tax forms irs Development Costs You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. 2010 tax forms irs These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. 2010 tax forms irs Development costs also include depreciation on improvements used in the development of ores or minerals and costs incurred for you by a contractor. 2010 tax forms irs Development costs do not include the costs for the acquisition or improvement of depreciable property. 2010 tax forms irs Instead of deducting development costs in the year paid or incurred, you can elect to treat the cost as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. 2010 tax forms irs This election applies each tax year to expenses paid or incurred in that year. 2010 tax forms irs Once made, the election is binding for the year and cannot be revoked for any reason. 2010 tax forms irs How to make the election. 2010 tax forms irs   The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. 2010 tax forms irs Generally, you must make the election by the due date of the return (including extensions). 2010 tax forms irs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 tax forms irs Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 2010 tax forms irs 9100-2. 2010 tax forms irs ” File the amended return at the same address you filed the original return. 2010 tax forms irs Foreign development costs. 2010 tax forms irs   The rules discussed earlier for foreign exploration costs apply to foreign development costs. 2010 tax forms irs Reduced corporate deductions for development costs. 2010 tax forms irs   The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs. 2010 tax forms irs Circulation Costs A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. 2010 tax forms irs For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. 2010 tax forms irs Circulation costs are deductible even if they normally would be capitalized. 2010 tax forms irs This rule does not apply to the following costs that must be capitalized. 2010 tax forms irs The purchase of land or depreciable property. 2010 tax forms irs The acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers. 2010 tax forms irs Other treatment of circulation costs. 2010 tax forms irs   If you do not want to deduct circulation costs as a current business expense, you can elect one of the following ways to recover these costs. 2010 tax forms irs Capitalize all circulation costs that are properly chargeable to a capital account (see chapter 1 ). 2010 tax forms irs Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred. 2010 tax forms irs How to make the election. 2010 tax forms irs   You elect to capitalize circulation costs by attaching a statement to your return for the first tax year the election applies. 2010 tax forms irs Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it. 2010 tax forms irs Business Start-Up and Organizational Costs Business start-up and organizational costs are generally capital expenditures. 2010 tax forms irs However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. 2010 tax forms irs The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. 2010 tax forms irs Any remaining costs must be amortized. 2010 tax forms irs For information about amortizing start-up and organizational costs, see chapter 8 . 2010 tax forms irs Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. 2010 tax forms irs Organizational costs include the costs of creating a corporation. 2010 tax forms irs For more information on start-up and organizational costs, see chapter 8 . 2010 tax forms irs How to make the election. 2010 tax forms irs   You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins. 2010 tax forms irs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 tax forms irs Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 2010 tax forms irs 9100-2. 2010 tax forms irs ” File the amended return at the same address you filed the original return. 2010 tax forms irs The election applies when computing taxable income for the current tax year and all subsequent years. 2010 tax forms irs Reforestation Costs Reforestation costs are generally capital expenditures. 2010 tax forms irs However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. 2010 tax forms irs The remaining costs can be amortized over an 84-month period. 2010 tax forms irs For information about amortizing reforestation costs, see chapter 8 . 2010 tax forms irs Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. 2010 tax forms irs Qualified timber property is property that contains trees in significant commercial quantities. 2010 tax forms irs See chapter 8 for more information on qualifying reforestation costs and qualified timber property. 2010 tax forms irs If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. 2010 tax forms irs Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed. 2010 tax forms irs How to make the election. 2010 tax forms irs   You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. 2010 tax forms irs If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. 2010 tax forms irs If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made. 2010 tax forms irs The unique stand identification numbers. 2010 tax forms irs The total number of acres reforested during the tax year. 2010 tax forms irs The nature of the reforestation treatments. 2010 tax forms irs The total amounts of qualified reforestation expenditures eligible to be amortized or deducted. 2010 tax forms irs   If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 tax forms irs Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 2010 tax forms irs 9100-2. 2010 tax forms irs ” File the amended return at the same address you filed the original return. 2010 tax forms irs The election applies when computing taxable income for the current tax year and all subsequent years. 2010 tax forms irs   For additional information on reforestation costs, see chapter 8 . 2010 tax forms irs Recapture. 2010 tax forms irs   This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. 2010 tax forms irs For more information on recapturing the deduction, see Depreciation Recapture in Publication 544. 2010 tax forms irs Retired Asset Removal Costs If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. 2010 tax forms irs However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair. 2010 tax forms irs Barrier Removal Costs The cost of an improvement to a business asset is normally a capital expense. 2010 tax forms irs However, you can elect to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. 2010 tax forms irs You must own or lease the facility or vehicle for use in connection with your trade or business. 2010 tax forms irs A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. 2010 tax forms irs A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services). 2010 tax forms irs You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business. 2010 tax forms irs Deduction limit. 2010 tax forms irs   The most you can deduct as a cost of removing barriers to the disabled and the elderly for any tax year is $15,000. 2010 tax forms irs However, you can add any costs over this limit to the basis of the property and depreciate these excess costs. 2010 tax forms irs Partners and partnerships. 2010 tax forms irs   The $15,000 limit applies to a partnership and also to each partner in the partnership. 2010 tax forms irs A partner can allocate the $15,000 limit in any manner among the partner's individually incurred costs and the partner's distributive share of partnership costs. 2010 tax forms irs If the partner cannot deduct the entire share of partnership costs, the partnership can add any costs not deducted to the basis of the improved property. 2010 tax forms irs   A partnership must be able to show that any amount added to basis was not deducted by the partner and that it was over a partner's $15,000 limit (as determined by the partner). 2010 tax forms irs If the partnership cannot show this, it is presumed that the partner was able to deduct the distributive share of the partnership's costs in full. 2010 tax forms irs Example. 2010 tax forms irs Emilio Azul's distributive share of ABC partnership's deductible expenses for the removal of architectural barriers was $14,000. 2010 tax forms irs Emilio had $12,000 of similar expenses in his sole proprietorship. 2010 tax forms irs He elected to deduct $7,000 of them. 2010 tax forms irs Emilio allocated the remaining $8,000 of the $15,000 limit to his share of ABC's expenses. 2010 tax forms irs Emilio can add the excess $5,000 of his own expenses to the basis of the property used in his business. 2010 tax forms irs Also, if ABC can show that Emilio could not deduct $6,000 ($14,000 – $8,000) of his share of the partnership's expenses because of how Emilio applied the limit, ABC can add $6,000 to the basis of its property. 2010 tax forms irs Qualification standards. 2010 tax forms irs   You can deduct your costs as a current expense only if the barrier removal meets the guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. 2010 tax forms irs You can view the Americans with Disabilities Act at www. 2010 tax forms irs ada. 2010 tax forms irs gov/pubs/ada. 2010 tax forms irs htm. 2010 tax forms irs   The following is a list of some architectural barrier removal costs that can be deducted. 2010 tax forms irs Ground and floor surfaces. 2010 tax forms irs Walks. 2010 tax forms irs Parking lots. 2010 tax forms irs Ramps. 2010 tax forms irs Entrances. 2010 tax forms irs Doors and doorways. 2010 tax forms irs Stairs. 2010 tax forms irs Floors. 2010 tax forms irs Toilet rooms. 2010 tax forms irs Water fountains. 2010 tax forms irs Public telephones. 2010 tax forms irs Elevators. 2010 tax forms irs Controls. 2010 tax forms irs Signage. 2010 tax forms irs Alarms. 2010 tax forms irs Protruding objects. 2010 tax forms irs Symbols of accessibility. 2010 tax forms irs You can find the ADA guidelines and requirements for architectural barrier removal at www. 2010 tax forms irs usdoj. 2010 tax forms irs gov/crt/ada/reg3a. 2010 tax forms irs html. 2010 tax forms irs   The costs for removal of transportation barriers from rail facilities, buses, and rapid and light rail vehicles are deductible. 2010 tax forms irs You can find the guidelines and requirements for transportation barrier removal at www. 2010 tax forms irs fta. 2010 tax forms irs dot. 2010 tax forms irs gov. 2010 tax forms irs   Also, you can access the ADA website at www. 2010 tax forms irs ada. 2010 tax forms irs gov for additional information. 2010 tax forms irs Other barrier removals. 2010 tax forms irs   To be deductible, expenses of removing any barrier not covered by the above standards must meet all three of the following tests. 2010 tax forms irs The removed barrier must be a substantial barrier to access or use of a facility or public transportation vehicle by persons who have a disability or are elderly. 2010 tax forms irs The removed barrier must have been a barrier for at least one major group of persons who have a disability or are elderly (such as people who are blind, deaf, or wheelchair users). 2010 tax forms irs The barrier must be removed without creating any new barrier that significantly impairs access to or use of the facility or vehicle by a major group of persons who have a disability or are elderly. 2010 tax forms irs How to make the election. 2010 tax forms irs   If you elect to deduct your costs for removing barriers to the disabled or the elderly, claim the deduction on your income tax return (partnership return for partnerships) for the tax year the expenses were paid or incurred. 2010 tax forms irs Identify the deduction as a separate item. 2010 tax forms irs The election applies to all the qualifying costs you have during the year, up to the $15,000 limit. 2010 tax forms irs If you make this election, you must maintain adequate records to support your deduction. 2010 tax forms irs   For your election to be valid, you generally must file your return by its due date, including extensions. 2010 tax forms irs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 tax forms irs Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 2010 tax forms irs 9100-2. 2010 tax forms irs ” File the amended return at the same address you filed the original return. 2010 tax forms irs Your election is irrevocable after the due date, including extensions, of your return. 2010 tax forms irs Disabled access credit. 2010 tax forms irs   If you make your business accessible to persons with disabilities and your business is an eligible small business, you may be able to claim the disabled access credit. 2010 tax forms irs If you choose to claim the credit, you must reduce the amount you deduct or capitalize by the amount of the credit. 2010 tax forms irs   For more information, see Form 8826, Disabled Access Credit. 2010 tax forms irs Film and Television Production Costs Film and television production costs are generally capital expenses. 2010 tax forms irs However, you can elect to deduct costs paid or incurred for certain productions commencing before January 1, 2014. 2010 tax forms irs For more information, see section 181 of the Internal 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2010 tax forms irs 8. 2010 tax forms irs   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. 2010 tax forms irs Cash method. 2010 tax forms irs Car and Truck ExpensesOffice in the home. 2010 tax forms irs Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. 2010 tax forms irs InsuranceHow to figure the deduction. 2010 tax forms irs Interest Legal and Professional FeesTax preparation fees. 2010 tax forms irs Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. 2010 tax forms irs Taxi, commuter bus, and limousine. 2010 tax forms irs Baggage and shipping. 2010 tax forms irs Car or truck. 2010 tax forms irs Meals and lodging. 2010 tax forms irs Cleaning. 2010 tax forms irs Telephone. 2010 tax forms irs Tips. 2010 tax forms irs More information. 2010 tax forms irs Business Use of Your HomeExceptions to exclusive use. 2010 tax forms irs Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. 2010 tax forms irs These costs are known as business expenses. 2010 tax forms irs These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. 2010 tax forms irs To be deductible, a business expense must be both ordinary and necessary. 2010 tax forms irs An ordinary expense is one that is common and accepted in your field of business. 2010 tax forms irs A necessary expense is one that is helpful and appropriate for your business. 2010 tax forms irs An expense does not have to be indispensable to be considered necessary. 2010 tax forms irs For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. 2010 tax forms irs If you have an expense that is partly for business and partly personal, separate the personal part from the business part. 2010 tax forms irs The personal part is not deductible. 2010 tax forms irs Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. 2010 tax forms irs Bad Debts If someone owes you money you cannot collect, you have a bad debt. 2010 tax forms irs There are two kinds of bad debts, business bad debts and nonbusiness bad debts. 2010 tax forms irs A business bad debt is generally one that comes from operating your trade or business. 2010 tax forms irs You may be able to deduct business bad debts as an expense on your business tax return. 2010 tax forms irs Business bad debt. 2010 tax forms irs   A business bad debt is a loss from the worthlessness of a debt that was either of the following. 2010 tax forms irs Created or acquired in your business. 2010 tax forms irs Closely related to your business when it became partly or totally worthless. 2010 tax forms irs A debt is closely related to your business if your primary motive for incurring the debt is a business reason. 2010 tax forms irs   Business bad debts are mainly the result of credit sales to customers. 2010 tax forms irs They can also be the result of loans to suppliers, clients, employees, or distributors. 2010 tax forms irs Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. 2010 tax forms irs If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. 2010 tax forms irs    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. 2010 tax forms irs Accrual method. 2010 tax forms irs   If you use an accrual method of accounting, you normally report income as you earn it. 2010 tax forms irs You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. 2010 tax forms irs Cash method. 2010 tax forms irs   If you use the cash method of accounting, you normally report income when you receive payment. 2010 tax forms irs You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. 2010 tax forms irs More information. 2010 tax forms irs   For more information about business bad debts, see chapter 10 in Publication 535. 2010 tax forms irs Nonbusiness bad debts. 2010 tax forms irs   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). 2010 tax forms irs For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. 2010 tax forms irs Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. 2010 tax forms irs You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. 2010 tax forms irs You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. 2010 tax forms irs See Form 8936 and Form 8910 for more information. 2010 tax forms irs Local transportation expenses. 2010 tax forms irs   Local transportation expenses include the ordinary and necessary costs of all the following. 2010 tax forms irs Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. 2010 tax forms irs Tax home is defined later. 2010 tax forms irs Visiting clients or customers. 2010 tax forms irs Going to a business meeting away from your regular workplace. 2010 tax forms irs Getting from your home to a temporary workplace when you have one or more regular places of work. 2010 tax forms irs These temporary workplaces can be either within the area of your tax home or outside that area. 2010 tax forms irs Local business transportation does not include expenses you have while traveling away from home overnight. 2010 tax forms irs Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. 2010 tax forms irs However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. 2010 tax forms irs   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 2010 tax forms irs It includes the entire city or general area in which your business or work is located. 2010 tax forms irs Example. 2010 tax forms irs You operate a printing business out of rented office space. 2010 tax forms irs You use your van to deliver completed jobs to your customers. 2010 tax forms irs You can deduct the cost of round-trip transportation between your customers and your print shop. 2010 tax forms irs    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. 2010 tax forms irs These costs are personal commuting expenses. 2010 tax forms irs Office in the home. 2010 tax forms irs   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. 2010 tax forms irs For more information, see Business Use of Your Home, later. 2010 tax forms irs Example. 2010 tax forms irs You are a graphics designer. 2010 tax forms irs You operate your business out of your home. 2010 tax forms irs Your home qualifies as your principal place of business. 2010 tax forms irs You occasionally have to drive to your clients to deliver your completed work. 2010 tax forms irs You can deduct the cost of the round-trip transportation between your home and your clients. 2010 tax forms irs Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. 2010 tax forms irs Standard mileage rate. 2010 tax forms irs Actual expenses. 2010 tax forms irs Standard mileage rate. 2010 tax forms irs   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. 2010 tax forms irs For 2013, the standard mileage rate is 56. 2010 tax forms irs 5 cents per mile. 2010 tax forms irs    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. 2010 tax forms irs Choosing the standard mileage rate. 2010 tax forms irs   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. 2010 tax forms irs In later years, you can choose to use either the standard mileage rate or actual expenses. 2010 tax forms irs   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). 2010 tax forms irs Standard mileage rate not allowed. 2010 tax forms irs   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. 2010 tax forms irs Parking fees and tolls. 2010 tax forms irs   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 2010 tax forms irs (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 2010 tax forms irs ) Actual expenses. 2010 tax forms irs   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. 2010 tax forms irs    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. 2010 tax forms irs   Actual car expenses include the costs of the following items. 2010 tax forms irs Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. 2010 tax forms irs You can divide your expenses based on the miles driven for each purpose. 2010 tax forms irs Example. 2010 tax forms irs You are the sole proprietor of a flower shop. 2010 tax forms irs You drove your van 20,000 miles during the year. 2010 tax forms irs 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). 2010 tax forms irs You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. 2010 tax forms irs More information. 2010 tax forms irs   For more information about the rules for claiming car and truck expenses, see Publication 463. 2010 tax forms irs Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. 2010 tax forms irs The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 2010 tax forms irs For details, see chapter 11 in Publication 535. 2010 tax forms irs That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 2010 tax forms irs Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. 2010 tax forms irs You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. 2010 tax forms irs This method of deducting the cost of business property is called depreciation. 2010 tax forms irs The discussion here is brief. 2010 tax forms irs You will find more information about depreciation in Publication 946. 2010 tax forms irs What property can be depreciated?   You can depreciate property if it meets all the following requirements. 2010 tax forms irs It must be property you own. 2010 tax forms irs It must be used in business or held to produce income. 2010 tax forms irs You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. 2010 tax forms irs It must have a useful life that extends substantially beyond the year it is placed in service. 2010 tax forms irs It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2010 tax forms irs You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. 2010 tax forms irs It must not be excepted property. 2010 tax forms irs This includes property placed in service and disposed of in the same year. 2010 tax forms irs Repairs. 2010 tax forms irs    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. 2010 tax forms irs You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. 2010 tax forms irs Depreciation method. 2010 tax forms irs   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). 2010 tax forms irs MACRS is discussed in detail in Publication 946. 2010 tax forms irs Section 179 deduction. 2010 tax forms irs   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. 2010 tax forms irs This deduction is known as the “section 179 deduction. 2010 tax forms irs ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). 2010 tax forms irs See IRC 179(e). 2010 tax forms irs   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. 2010 tax forms irs The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). 2010 tax forms irs Special rules apply to trucks and vans. 2010 tax forms irs For more information, see Publication 946. 2010 tax forms irs It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. 2010 tax forms irs    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. 2010 tax forms irs For more information, see the Instructions for Form 4562 or Publication 946. 2010 tax forms irs Listed property. 2010 tax forms irs   You must follow special rules and recordkeeping requirements when depreciating listed property. 2010 tax forms irs Listed property is any of the following. 2010 tax forms irs Most passenger automobiles. 2010 tax forms irs Most other property used for transportation. 2010 tax forms irs Any property of a type generally used for entertainment, recreation, or amusement. 2010 tax forms irs Certain computers and related peripheral equipment. 2010 tax forms irs   For more information about listed property, see Publication 946. 2010 tax forms irs Form 4562. 2010 tax forms irs   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. 2010 tax forms irs Depreciation on property placed in service during the current tax year. 2010 tax forms irs A section 179 deduction. 2010 tax forms irs Depreciation on any listed property (regardless of when it was placed in service). 2010 tax forms irs    If you have to use Form 4562, you must file Schedule C. 2010 tax forms irs You cannot use Schedule C-EZ. 2010 tax forms irs   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. 2010 tax forms irs The pay may be in cash, property, or services. 2010 tax forms irs To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. 2010 tax forms irs In addition, the pay must meet both the following tests. 2010 tax forms irs The pay must be reasonable. 2010 tax forms irs The pay must be for services performed. 2010 tax forms irs Chapter 2 in Publication 535 explains and defines these requirements. 2010 tax forms irs You cannot deduct your own salary or any personal withdrawals you make from your business. 2010 tax forms irs As a sole proprietor, you are not an employee of the business. 2010 tax forms irs If you had employees during the year, you must use Schedule C. 2010 tax forms irs You cannot use Schedule C-EZ. 2010 tax forms irs Kinds of pay. 2010 tax forms irs   Some of the ways you may provide pay to your employees are listed below. 2010 tax forms irs For an explanation of each of these items, see chapter 2 in Publication 535. 2010 tax forms irs Awards. 2010 tax forms irs Bonuses. 2010 tax forms irs Education expenses. 2010 tax forms irs Fringe benefits (discussed later). 2010 tax forms irs Loans or advances you do not expect the employee to repay if they are for personal services actually performed. 2010 tax forms irs Property you transfer to an employee as payment for services. 2010 tax forms irs Reimbursements for employee business expenses. 2010 tax forms irs Sick pay. 2010 tax forms irs Vacation pay. 2010 tax forms irs Fringe benefits. 2010 tax forms irs   A fringe benefit is a form of pay for the performance of services. 2010 tax forms irs The following are examples of fringe benefits. 2010 tax forms irs Benefits under qualified employee benefit programs. 2010 tax forms irs Meals and lodging. 2010 tax forms irs The use of a car. 2010 tax forms irs Flights on airplanes. 2010 tax forms irs Discounts on property or services. 2010 tax forms irs Memberships in country clubs or other social clubs. 2010 tax forms irs Tickets to entertainment or sporting events. 2010 tax forms irs   Employee benefit programs include the following. 2010 tax forms irs Accident and health plans. 2010 tax forms irs Adoption assistance. 2010 tax forms irs Cafeteria plans. 2010 tax forms irs Dependent care assistance. 2010 tax forms irs Educational assistance. 2010 tax forms irs Group-term life insurance coverage. 2010 tax forms irs Welfare benefit funds. 2010 tax forms irs   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. 2010 tax forms irs For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. 2010 tax forms irs If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. 2010 tax forms irs    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. 2010 tax forms irs For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 2010 tax forms irs Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. 2010 tax forms irs Fire, theft, flood, or similar insurance. 2010 tax forms irs Credit insurance that covers losses from business bad debts. 2010 tax forms irs Group hospitalization and medical insurance for employees, including long-term care insurance. 2010 tax forms irs Liability insurance. 2010 tax forms irs Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 2010 tax forms irs Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. 2010 tax forms irs Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 2010 tax forms irs Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 2010 tax forms irs Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 2010 tax forms irs If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. 2010 tax forms irs If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 2010 tax forms irs Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. 2010 tax forms irs Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 2010 tax forms irs Nondeductible premiums. 2010 tax forms irs   You cannot deduct premiums on the following kinds of insurance. 2010 tax forms irs Self-insurance reserve funds. 2010 tax forms irs You cannot deduct amounts credited to a reserve set up for self-insurance. 2010 tax forms irs This applies even if you cannot get business insurance coverage for certain business risks. 2010 tax forms irs However, your actual losses may be deductible. 2010 tax forms irs For more information, see Publication 547, Casualties, Disasters, and Thefts. 2010 tax forms irs Loss of earnings. 2010 tax forms irs You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. 2010 tax forms irs However, see item (8) in the previous list. 2010 tax forms irs Certain life insurance and annuities. 2010 tax forms irs For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. 2010 tax forms irs You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. 2010 tax forms irs A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. 2010 tax forms irs For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. 2010 tax forms irs The disallowance applies without regard to whom the policy covers. 2010 tax forms irs Insurance to secure a loan. 2010 tax forms irs If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. 2010 tax forms irs Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 2010 tax forms irs In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 2010 tax forms irs Self-employed health insurance deduction. 2010 tax forms irs   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. 2010 tax forms irs How to figure the deduction. 2010 tax forms irs   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 2010 tax forms irs However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. 2010 tax forms irs You have more than one source of income subject to self-employment tax. 2010 tax forms irs You file Form 2555 or Form 2555-EZ (relating to foreign earned income). 2010 tax forms irs You are using amounts paid for qualified long-term care insurance to figure the deduction. 2010 tax forms irs Prepayment. 2010 tax forms irs   You cannot deduct expenses in advance, even if you pay them in advance. 2010 tax forms irs This rule applies to any 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 forms irs Example. 2010 tax forms irs In 2013, you signed a 3-year insurance contract. 2010 tax forms irs Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. 2010 tax forms irs You can deduct in 2014 and 2015 the premium allocable to those years. 2010 tax forms irs More information. 2010 tax forms irs   For more information about deducting insurance, see chapter 6 in Publication 535. 2010 tax forms irs Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. 2010 tax forms irs Interest relates to your business if you use the proceeds of the loan for a business expense. 2010 tax forms irs It does not matter what type of property secures the loan. 2010 tax forms irs You can deduct interest on a debt only if you meet all of the following requirements. 2010 tax forms irs You are legally liable for that debt. 2010 tax forms irs Both you and the lender intend that the debt be repaid. 2010 tax forms irs You and the lender have a true debtor-creditor relationship. 2010 tax forms irs You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. 2010 tax forms irs If a loan is part business and part personal, you must divide the interest between the personal part and the business part. 2010 tax forms irs Example. 2010 tax forms irs In 2013, you paid $600 interest on a car loan. 2010 tax forms irs During 2013, you used the car 60% for business and 40% for personal purposes. 2010 tax forms irs You are claiming actual expenses on the car. 2010 tax forms irs You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. 2010 tax forms irs The remaining interest of $240 is a nondeductible personal expense. 2010 tax forms irs More information. 2010 tax forms irs   For more information about deducting interest, see chapter 4 in Publication 535. 2010 tax forms irs That chapter explains the following items. 2010 tax forms irs Interest you can deduct. 2010 tax forms irs Interest you cannot deduct. 2010 tax forms irs How to allocate interest between personal and business use. 2010 tax forms irs When to deduct interest. 2010 tax forms irs The rules for a below-market interest rate loan. 2010 tax forms irs (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 2010 tax forms irs ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. 2010 tax forms irs However, you usually cannot deduct legal fees you pay to acquire business assets. 2010 tax forms irs Add them to the basis of the property. 2010 tax forms irs If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. 2010 tax forms irs The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. 2010 tax forms irs For more information, see Publication 529, Miscellaneous Deductions. 2010 tax forms irs Tax preparation fees. 2010 tax forms irs   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. 2010 tax forms irs You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 2010 tax forms irs   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. 2010 tax forms irs Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. 2010 tax forms irs SEP (Simplified Employee Pension) plans. 2010 tax forms irs SIMPLE (Savings Incentive Match Plan for Employees) plans. 2010 tax forms irs Qualified plans (including Keogh or H. 2010 tax forms irs R. 2010 tax forms irs 10 plans). 2010 tax forms irs SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. 2010 tax forms irs You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. 2010 tax forms irs If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. 2010 tax forms irs You can also deduct trustees' fees if contributions to the plan do not cover them. 2010 tax forms irs Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. 2010 tax forms irs You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. 2010 tax forms irs Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. 2010 tax forms irs These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. 2010 tax forms irs For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 2010 tax forms irs Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. 2010 tax forms irs Rent Expense Rent is any amount you pay for the use of property you do not own. 2010 tax forms irs In general, you can deduct rent as a business expense only if the rent is for property you use in your business. 2010 tax forms irs If you have or will receive equity in or title to the property, you cannot deduct the rent. 2010 tax forms irs Unreasonable rent. 2010 tax forms irs   You cannot take a rental deduction for unreasonable rents. 2010 tax forms irs Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 2010 tax forms irs Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 2010 tax forms irs Rent is not unreasonable just because it is figured as a percentage of gross receipts. 2010 tax forms irs   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 2010 tax forms irs For a list of the other related persons, see section 267 of the Internal Revenue Code. 2010 tax forms irs Rent on your home. 2010 tax forms irs   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 2010 tax forms irs You must meet the requirements for business use of your home. 2010 tax forms irs For more information, see Business Use of Your Home , later. 2010 tax forms irs Rent paid in advance. 2010 tax forms irs   Generally, rent paid in your business is deductible in the year paid or accrued. 2010 tax forms irs If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 2010 tax forms irs You can deduct the rest of your payment only over the period to which it applies. 2010 tax forms irs More information. 2010 tax forms irs   For more information about rent, see chapter 3 in Publication 535. 2010 tax forms irs Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. 2010 tax forms irs Income taxes. 2010 tax forms irs   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. 2010 tax forms irs You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. 2010 tax forms irs Do not deduct federal income tax. 2010 tax forms irs Employment taxes. 2010 tax forms irs   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. 2010 tax forms irs Employment taxes are discussed briefly in chapter 1. 2010 tax forms irs You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. 2010 tax forms irs Deduct these payments as taxes. 2010 tax forms irs Self-employment tax. 2010 tax forms irs   You can deduct one-half of your self-employment tax on line 27 of Form 1040. 2010 tax forms irs Self-employment tax is discussed in chapters 1 and 10. 2010 tax forms irs Personal property tax. 2010 tax forms irs   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. 2010 tax forms irs   You can also deduct registration fees for the right to use property within a state or local area. 2010 tax forms irs Example. 2010 tax forms irs May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. 2010 tax forms irs They had to pay $25 for their annual state license tags and $20 for their city registration sticker. 2010 tax forms irs They also paid $235 in city personal property tax on the car, for a total of $280. 2010 tax forms irs They are claiming their actual car expenses. 2010 tax forms irs Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. 2010 tax forms irs Real estate taxes. 2010 tax forms irs   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. 2010 tax forms irs Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. 2010 tax forms irs The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. 2010 tax forms irs   For more information about real estate taxes, see chapter 5 in Publication 535. 2010 tax forms irs That chapter explains special rules for deducting the following items. 2010 tax forms irs Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. 2010 tax forms irs Real estate taxes when you buy or sell property during the year. 2010 tax forms irs Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. 2010 tax forms irs Sales tax. 2010 tax forms irs   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. 2010 tax forms irs If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. 2010 tax forms irs If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. 2010 tax forms irs If the property is depreciable, add the sales tax to the basis for depreciation. 2010 tax forms irs For information on the basis of property, see Publication 551, Basis of Assets. 2010 tax forms irs    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. 2010 tax forms irs Do not include these taxes in gross receipts or sales. 2010 tax forms irs Excise taxes. 2010 tax forms irs   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. 2010 tax forms irs Excise taxes are discussed briefly in chapter 1. 2010 tax forms irs Fuel taxes. 2010 tax forms irs   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. 2010 tax forms irs Do not deduct these taxes as a separate item. 2010 tax forms irs   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. 2010 tax forms irs For more information, see Publication 510, Excise Taxes. 2010 tax forms irs Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. 2010 tax forms irs Table 8-1. 2010 tax forms irs When Are Entertainment Expenses Deductible? (Note. 2010 tax forms irs The following is a summary of the rules for deducting entertainment expenses. 2010 tax forms irs For more details about these rules, see Publication 463. 2010 tax forms irs ) 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. 2010 tax forms irs Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 2010 tax forms irs An ordinary expense is one that is common and accepted in your field of business, trade, or profession. 2010 tax forms irs A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. 2010 tax forms irs 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. 2010 tax forms irs   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. 2010 tax forms irs Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 2010 tax forms irs You cannot deduct expenses that are lavish or extravagant under the circumstances. 2010 tax forms irs You generally can deduct only 50% of your unreimbursed entertainment expenses. 2010 tax forms irs Travel expenses. 2010 tax forms irs   These are the ordinary and necessary expenses of traveling away from home for your business. 2010 tax forms irs You are traveling away from home if both the following conditions are met. 2010 tax forms irs Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. 2010 tax forms irs You need to get sleep or rest to meet the demands of your work while away from home. 2010 tax forms irs Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 2010 tax forms irs It includes the entire city or general area in which your business is located. 2010 tax forms irs See Publication 463 for more information. 2010 tax forms irs   The following is a brief discussion of the expenses you can deduct. 2010 tax forms irs Transportation. 2010 tax forms irs   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. 2010 tax forms irs Taxi, commuter bus, and limousine. 2010 tax forms irs   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. 2010 tax forms irs Baggage and shipping. 2010 tax forms irs   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. 2010 tax forms irs Car or truck. 2010 tax forms irs   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. 2010 tax forms irs You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. 2010 tax forms irs If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 2010 tax forms irs Meals and lodging. 2010 tax forms irs   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 2010 tax forms irs In most cases, you can deduct only 50% of your meal expenses. 2010 tax forms irs Cleaning. 2010 tax forms irs   You can deduct the costs of dry cleaning and laundry while on your business trip. 2010 tax forms irs Telephone. 2010 tax forms irs   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. 2010 tax forms irs Tips. 2010 tax forms irs   You can deduct the tips you pay for any expense in this list. 2010 tax forms irs More information. 2010 tax forms irs   For more information about travel expenses, see Publication 463. 2010 tax forms irs Entertainment expenses. 2010 tax forms irs   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. 2010 tax forms irs In most cases, you can deduct only 50% of these expenses. 2010 tax forms irs   The following are examples of entertainment expenses. 2010 tax forms irs Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. 2010 tax forms irs Providing meals, a hotel suite, or a car to business customers or their families. 2010 tax forms irs To be deductible, the expenses must meet the rules listed in Table 8-1. 2010 tax forms irs For details about these rules, see Publication 463. 2010 tax forms irs Reimbursing your employees for expenses. 2010 tax forms irs   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. 2010 tax forms irs The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 2010 tax forms irs For details, see chapter 11 in Publication 535. 2010 tax forms irs That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 2010 tax forms irs Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. 2010 tax forms irs Even then, your deduction may be limited. 2010 tax forms irs To qualify to claim expenses for business use of your home, you must meet the following tests. 2010 tax forms irs Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. 2010 tax forms irs Exclusive use. 2010 tax forms irs   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. 2010 tax forms irs The area used for business can be a room or other separately identifiable space. 2010 tax forms irs The space does not need to be marked off by a permanent partition. 2010 tax forms irs   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. 2010 tax forms irs Example. 2010 tax forms irs You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. 2010 tax forms irs Your family also uses the den for recreation. 2010 tax forms irs The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. 2010 tax forms irs Exceptions to exclusive use. 2010 tax forms irs   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. 2010 tax forms irs For the storage of inventory or product samples. 2010 tax forms irs As a daycare facility. 2010 tax forms irs For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). 2010 tax forms irs Regular use. 2010 tax forms irs   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. 2010 tax forms irs You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. 2010 tax forms irs Principal place of business. 2010 tax forms irs   You can have more than one business location, including your home, for a single trade or business. 2010 tax forms irs To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. 2010 tax forms irs To determine your principal place of business, you must consider all the facts and circumstances. 2010 tax forms irs   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. 2010 tax forms irs You use it exclusively and regularly for administrative or management activities of your business. 2010 tax forms irs You have no other fixed location where you conduct substantial administrative or management activities of your business. 2010 tax forms irs   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. 2010 tax forms irs The relative importance of the activities performed at each location. 2010 tax forms irs If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. 2010 tax forms irs   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. 2010 tax forms irs However, for other ways to qualify to deduct home office expenses, see Publication 587. 2010 tax forms irs Deduction limit. 2010 tax forms irs   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. 2010 tax forms irs If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. 2010 tax forms irs   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. 2010 tax forms irs The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). 2010 tax forms irs The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. 2010 tax forms irs Do not include in (2) above your deduction for one-half of your self-employment tax. 2010 tax forms irs   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. 2010 tax forms irs New simplified method. 2010 tax forms irs    The IRS now provides a simplified method to determine your expenses for business use of your home. 2010 tax forms irs The simplified method is an alternative to calculating and substantiating actual expenses. 2010 tax forms irs In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. 2010 tax forms irs The area you use to figure your deduction is limited to 300 square feet. 2010 tax forms irs For more information, see the Instructions for Schedule C. 2010 tax forms irs More information. 2010 tax forms irs   For more information on deducting expenses for the business use of your home, see Publication 587. 2010 tax forms irs Other Expenses You Can Deduct You may also be able to deduct the following expenses. 2010 tax forms irs See Publication 535 to find out whether you can deduct them. 2010 tax forms irs Advertising. 2010 tax forms irs Bank fees. 2010 tax forms irs Donations to business organizations. 2010 tax forms irs Education expenses. 2010 tax forms irs Energy efficient commercial buildings deduction expenses. 2010 tax forms irs Impairment-related expenses. 2010 tax forms irs Interview expense allowances. 2010 tax forms irs Licenses and regulatory fees. 2010 tax forms irs Moving machinery. 2010 tax forms irs Outplacement services. 2010 tax forms irs Penalties and fines you pay for late performance or nonperformance of a contract. 2010 tax forms irs Repairs that keep your property in a normal efficient operating condition. 2010 tax forms irs Repayments of income. 2010 tax forms irs Subscriptions to trade or professional publications. 2010 tax forms irs Supplies and materials. 2010 tax forms irs Utilities. 2010 tax forms irs Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. 2010 tax forms irs For more information, see Publication 535. 2010 tax forms irs Bribes and kickbacks. 2010 tax forms irs Charitable contributions. 2010 tax forms irs Demolition expenses or losses. 2010 tax forms irs Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. 2010 tax forms irs Lobbying expenses. 2010 tax forms irs Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. 2010 tax forms irs Personal, living, and family expenses. 2010 tax forms irs Political contributions. 2010 tax forms irs Repairs that add to the value of your property or significantly increase its life. 2010 tax forms 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