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940 Ez Form

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940 Ez Form

940 ez form 1. 940 ez form   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). 940 ez form These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). 940 ez form In addition, the following are subject to the tax on unrelated business income. 940 ez form Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). 940 ez form State and municipal colleges and universities. 940 ez form Qualified state tuition programs. 940 ez form Medical savings accounts (MSAs) described in section 220(d). 940 ez form Coverdell savings accounts described in section 530. 940 ez form U. 940 ez form S. 940 ez form instrumentalities. 940 ez form   A corporation that is a U. 940 ez form S. 940 ez form instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. 940 ez form Colleges and universities. 940 ez form   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. 940 ez form As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). 940 ez form   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. 940 ez form It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. 940 ez form If the business activity is unrelated, the income in both instances will be subject to the tax. 940 ez form If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. 940 ez form Title-holding corporations. 940 ez form   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. 940 ez form   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. 940 ez form However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. 940 ez form Example. 940 ez form X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. 940 ez form During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. 940 ez form X also receives $100,000 from source N, which is not related to A's exempt function. 940 ez form X and A file a consolidated return for the tax year. 940 ez form X has unrelated business income of $100,000. 940 ez form Prev  Up  Next   Home   More Online Publications
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The 940 Ez Form

940 ez form 8. 940 ez form   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. 940 ez form Cash method. 940 ez form Car and Truck ExpensesOffice in the home. 940 ez form Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. 940 ez form InsuranceHow to figure the deduction. 940 ez form Interest Legal and Professional FeesTax preparation fees. 940 ez form Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. 940 ez form Taxi, commuter bus, and limousine. 940 ez form Baggage and shipping. 940 ez form Car or truck. 940 ez form Meals and lodging. 940 ez form Cleaning. 940 ez form Telephone. 940 ez form Tips. 940 ez form More information. 940 ez form Business Use of Your HomeExceptions to exclusive use. 940 ez form Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. 940 ez form These costs are known as business expenses. 940 ez form These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. 940 ez form To be deductible, a business expense must be both ordinary and necessary. 940 ez form An ordinary expense is one that is common and accepted in your field of business. 940 ez form A necessary expense is one that is helpful and appropriate for your business. 940 ez form An expense does not have to be indispensable to be considered necessary. 940 ez form For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. 940 ez form If you have an expense that is partly for business and partly personal, separate the personal part from the business part. 940 ez form The personal part is not deductible. 940 ez form 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. 940 ez form Bad Debts If someone owes you money you cannot collect, you have a bad debt. 940 ez form There are two kinds of bad debts, business bad debts and nonbusiness bad debts. 940 ez form A business bad debt is generally one that comes from operating your trade or business. 940 ez form You may be able to deduct business bad debts as an expense on your business tax return. 940 ez form Business bad debt. 940 ez form   A business bad debt is a loss from the worthlessness of a debt that was either of the following. 940 ez form Created or acquired in your business. 940 ez form Closely related to your business when it became partly or totally worthless. 940 ez form A debt is closely related to your business if your primary motive for incurring the debt is a business reason. 940 ez form   Business bad debts are mainly the result of credit sales to customers. 940 ez form They can also be the result of loans to suppliers, clients, employees, or distributors. 940 ez form Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. 940 ez form If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. 940 ez form    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. 940 ez form Accrual method. 940 ez form   If you use an accrual method of accounting, you normally report income as you earn it. 940 ez form You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. 940 ez form Cash method. 940 ez form   If you use the cash method of accounting, you normally report income when you receive payment. 940 ez form 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. 940 ez form More information. 940 ez form   For more information about business bad debts, see chapter 10 in Publication 535. 940 ez form Nonbusiness bad debts. 940 ez form   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). 940 ez form For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. 940 ez form 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. 940 ez form You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. 940 ez form 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. 940 ez form See Form 8936 and Form 8910 for more information. 940 ez form Local transportation expenses. 940 ez form   Local transportation expenses include the ordinary and necessary costs of all the following. 940 ez form 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. 940 ez form Tax home is defined later. 940 ez form Visiting clients or customers. 940 ez form Going to a business meeting away from your regular workplace. 940 ez form Getting from your home to a temporary workplace when you have one or more regular places of work. 940 ez form These temporary workplaces can be either within the area of your tax home or outside that area. 940 ez form Local business transportation does not include expenses you have while traveling away from home overnight. 940 ez form Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. 940 ez form However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. 940 ez form   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 940 ez form It includes the entire city or general area in which your business or work is located. 940 ez form Example. 940 ez form You operate a printing business out of rented office space. 940 ez form You use your van to deliver completed jobs to your customers. 940 ez form You can deduct the cost of round-trip transportation between your customers and your print shop. 940 ez form    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. 940 ez form These costs are personal commuting expenses. 940 ez form Office in the home. 940 ez form   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. 940 ez form For more information, see Business Use of Your Home, later. 940 ez form Example. 940 ez form You are a graphics designer. 940 ez form You operate your business out of your home. 940 ez form Your home qualifies as your principal place of business. 940 ez form You occasionally have to drive to your clients to deliver your completed work. 940 ez form You can deduct the cost of the round-trip transportation between your home and your clients. 940 ez form 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. 940 ez form Standard mileage rate. 940 ez form Actual expenses. 940 ez form Standard mileage rate. 940 ez form   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. 940 ez form For 2013, the standard mileage rate is 56. 940 ez form 5 cents per mile. 940 ez form    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. 940 ez form Choosing the standard mileage rate. 940 ez form   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. 940 ez form In later years, you can choose to use either the standard mileage rate or actual expenses. 940 ez form   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). 940 ez form Standard mileage rate not allowed. 940 ez form   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. 940 ez form Parking fees and tolls. 940 ez form   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 940 ez form (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 940 ez form ) Actual expenses. 940 ez form   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. 940 ez form    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. 940 ez form   Actual car expenses include the costs of the following items. 940 ez form 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. 940 ez form You can divide your expenses based on the miles driven for each purpose. 940 ez form Example. 940 ez form You are the sole proprietor of a flower shop. 940 ez form You drove your van 20,000 miles during the year. 940 ez form 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). 940 ez form You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. 940 ez form More information. 940 ez form   For more information about the rules for claiming car and truck expenses, see Publication 463. 940 ez form Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. 940 ez form 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. 940 ez form For details, see chapter 11 in Publication 535. 940 ez form 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. 940 ez form 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. 940 ez form You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. 940 ez form This method of deducting the cost of business property is called depreciation. 940 ez form The discussion here is brief. 940 ez form You will find more information about depreciation in Publication 946. 940 ez form What property can be depreciated?   You can depreciate property if it meets all the following requirements. 940 ez form It must be property you own. 940 ez form It must be used in business or held to produce income. 940 ez form You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. 940 ez form It must have a useful life that extends substantially beyond the year it is placed in service. 940 ez form 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. 940 ez form You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. 940 ez form It must not be excepted property. 940 ez form This includes property placed in service and disposed of in the same year. 940 ez form Repairs. 940 ez form    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. 940 ez form You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. 940 ez form Depreciation method. 940 ez form   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). 940 ez form MACRS is discussed in detail in Publication 946. 940 ez form Section 179 deduction. 940 ez form   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. 940 ez form This deduction is known as the “section 179 deduction. 940 ez form ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). 940 ez form See IRC 179(e). 940 ez form   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. 940 ez form 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). 940 ez form Special rules apply to trucks and vans. 940 ez form For more information, see Publication 946. 940 ez form It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. 940 ez form    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. 940 ez form For more information, see the Instructions for Form 4562 or Publication 946. 940 ez form Listed property. 940 ez form   You must follow special rules and recordkeeping requirements when depreciating listed property. 940 ez form Listed property is any of the following. 940 ez form Most passenger automobiles. 940 ez form Most other property used for transportation. 940 ez form Any property of a type generally used for entertainment, recreation, or amusement. 940 ez form Certain computers and related peripheral equipment. 940 ez form   For more information about listed property, see Publication 946. 940 ez form Form 4562. 940 ez form   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. 940 ez form Depreciation on property placed in service during the current tax year. 940 ez form A section 179 deduction. 940 ez form Depreciation on any listed property (regardless of when it was placed in service). 940 ez form    If you have to use Form 4562, you must file Schedule C. 940 ez form You cannot use Schedule C-EZ. 940 ez form   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. 940 ez form The pay may be in cash, property, or services. 940 ez form To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. 940 ez form In addition, the pay must meet both the following tests. 940 ez form The pay must be reasonable. 940 ez form The pay must be for services performed. 940 ez form Chapter 2 in Publication 535 explains and defines these requirements. 940 ez form You cannot deduct your own salary or any personal withdrawals you make from your business. 940 ez form As a sole proprietor, you are not an employee of the business. 940 ez form If you had employees during the year, you must use Schedule C. 940 ez form You cannot use Schedule C-EZ. 940 ez form Kinds of pay. 940 ez form   Some of the ways you may provide pay to your employees are listed below. 940 ez form For an explanation of each of these items, see chapter 2 in Publication 535. 940 ez form Awards. 940 ez form Bonuses. 940 ez form Education expenses. 940 ez form Fringe benefits (discussed later). 940 ez form Loans or advances you do not expect the employee to repay if they are for personal services actually performed. 940 ez form Property you transfer to an employee as payment for services. 940 ez form Reimbursements for employee business expenses. 940 ez form Sick pay. 940 ez form Vacation pay. 940 ez form Fringe benefits. 940 ez form   A fringe benefit is a form of pay for the performance of services. 940 ez form The following are examples of fringe benefits. 940 ez form Benefits under qualified employee benefit programs. 940 ez form Meals and lodging. 940 ez form The use of a car. 940 ez form Flights on airplanes. 940 ez form Discounts on property or services. 940 ez form Memberships in country clubs or other social clubs. 940 ez form Tickets to entertainment or sporting events. 940 ez form   Employee benefit programs include the following. 940 ez form Accident and health plans. 940 ez form Adoption assistance. 940 ez form Cafeteria plans. 940 ez form Dependent care assistance. 940 ez form Educational assistance. 940 ez form Group-term life insurance coverage. 940 ez form Welfare benefit funds. 940 ez form   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. 940 ez form 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. 940 ez form If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. 940 ez form    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. 940 ez form For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 940 ez form Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. 940 ez form Fire, theft, flood, or similar insurance. 940 ez form Credit insurance that covers losses from business bad debts. 940 ez form Group hospitalization and medical insurance for employees, including long-term care insurance. 940 ez form Liability insurance. 940 ez form Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 940 ez form 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. 940 ez form Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 940 ez form Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 940 ez form Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 940 ez form 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. 940 ez form If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 940 ez form Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. 940 ez form Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 940 ez form Nondeductible premiums. 940 ez form   You cannot deduct premiums on the following kinds of insurance. 940 ez form Self-insurance reserve funds. 940 ez form You cannot deduct amounts credited to a reserve set up for self-insurance. 940 ez form This applies even if you cannot get business insurance coverage for certain business risks. 940 ez form However, your actual losses may be deductible. 940 ez form For more information, see Publication 547, Casualties, Disasters, and Thefts. 940 ez form Loss of earnings. 940 ez form You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. 940 ez form However, see item (8) in the previous list. 940 ez form Certain life insurance and annuities. 940 ez form 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. 940 ez form 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. 940 ez form 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. 940 ez form 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. 940 ez form The disallowance applies without regard to whom the policy covers. 940 ez form Insurance to secure a loan. 940 ez form 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. 940 ez form Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 940 ez form In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 940 ez form Self-employed health insurance deduction. 940 ez form   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. 940 ez form How to figure the deduction. 940 ez form   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 940 ez form However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. 940 ez form You have more than one source of income subject to self-employment tax. 940 ez form You file Form 2555 or Form 2555-EZ (relating to foreign earned income). 940 ez form You are using amounts paid for qualified long-term care insurance to figure the deduction. 940 ez form Prepayment. 940 ez form   You cannot deduct expenses in advance, even if you pay them in advance. 940 ez form 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. 940 ez form Example. 940 ez form In 2013, you signed a 3-year insurance contract. 940 ez form 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. 940 ez form You can deduct in 2014 and 2015 the premium allocable to those years. 940 ez form More information. 940 ez form   For more information about deducting insurance, see chapter 6 in Publication 535. 940 ez form 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. 940 ez form Interest relates to your business if you use the proceeds of the loan for a business expense. 940 ez form It does not matter what type of property secures the loan. 940 ez form You can deduct interest on a debt only if you meet all of the following requirements. 940 ez form You are legally liable for that debt. 940 ez form Both you and the lender intend that the debt be repaid. 940 ez form You and the lender have a true debtor-creditor relationship. 940 ez form You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. 940 ez form If a loan is part business and part personal, you must divide the interest between the personal part and the business part. 940 ez form Example. 940 ez form In 2013, you paid $600 interest on a car loan. 940 ez form During 2013, you used the car 60% for business and 40% for personal purposes. 940 ez form You are claiming actual expenses on the car. 940 ez form You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. 940 ez form The remaining interest of $240 is a nondeductible personal expense. 940 ez form More information. 940 ez form   For more information about deducting interest, see chapter 4 in Publication 535. 940 ez form That chapter explains the following items. 940 ez form Interest you can deduct. 940 ez form Interest you cannot deduct. 940 ez form How to allocate interest between personal and business use. 940 ez form When to deduct interest. 940 ez form The rules for a below-market interest rate loan. 940 ez form (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. 940 ez form ) 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. 940 ez form However, you usually cannot deduct legal fees you pay to acquire business assets. 940 ez form Add them to the basis of the property. 940 ez form 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. 940 ez form 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. 940 ez form For more information, see Publication 529, Miscellaneous Deductions. 940 ez form Tax preparation fees. 940 ez form   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. 940 ez form You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 940 ez form   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. 940 ez form Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. 940 ez form SEP (Simplified Employee Pension) plans. 940 ez form SIMPLE (Savings Incentive Match Plan for Employees) plans. 940 ez form Qualified plans (including Keogh or H. 940 ez form R. 940 ez form 10 plans). 940 ez form SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. 940 ez form You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. 940 ez form If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. 940 ez form You can also deduct trustees' fees if contributions to the plan do not cover them. 940 ez form Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. 940 ez form 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. 940 ez form Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. 940 ez form These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. 940 ez form For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 940 ez form Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. 940 ez form Rent Expense Rent is any amount you pay for the use of property you do not own. 940 ez form In general, you can deduct rent as a business expense only if the rent is for property you use in your business. 940 ez form If you have or will receive equity in or title to the property, you cannot deduct the rent. 940 ez form Unreasonable rent. 940 ez form   You cannot take a rental deduction for unreasonable rents. 940 ez form Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 940 ez form 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. 940 ez form Rent is not unreasonable just because it is figured as a percentage of gross receipts. 940 ez form   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 940 ez form For a list of the other related persons, see section 267 of the Internal Revenue Code. 940 ez form Rent on your home. 940 ez form   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. 940 ez form You must meet the requirements for business use of your home. 940 ez form For more information, see Business Use of Your Home , later. 940 ez form Rent paid in advance. 940 ez form   Generally, rent paid in your business is deductible in the year paid or accrued. 940 ez form 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. 940 ez form You can deduct the rest of your payment only over the period to which it applies. 940 ez form More information. 940 ez form   For more information about rent, see chapter 3 in Publication 535. 940 ez form Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. 940 ez form Income taxes. 940 ez form   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. 940 ez form You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. 940 ez form Do not deduct federal income tax. 940 ez form Employment taxes. 940 ez form   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. 940 ez form Employment taxes are discussed briefly in chapter 1. 940 ez form You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. 940 ez form Deduct these payments as taxes. 940 ez form Self-employment tax. 940 ez form   You can deduct one-half of your self-employment tax on line 27 of Form 1040. 940 ez form Self-employment tax is discussed in chapters 1 and 10. 940 ez form Personal property tax. 940 ez form   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. 940 ez form   You can also deduct registration fees for the right to use property within a state or local area. 940 ez form Example. 940 ez form May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. 940 ez form They had to pay $25 for their annual state license tags and $20 for their city registration sticker. 940 ez form They also paid $235 in city personal property tax on the car, for a total of $280. 940 ez form They are claiming their actual car expenses. 940 ez form Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. 940 ez form Real estate taxes. 940 ez form   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. 940 ez form Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. 940 ez form 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. 940 ez form   For more information about real estate taxes, see chapter 5 in Publication 535. 940 ez form That chapter explains special rules for deducting the following items. 940 ez form Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. 940 ez form Real estate taxes when you buy or sell property during the year. 940 ez form 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. 940 ez form Sales tax. 940 ez form   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. 940 ez form 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. 940 ez form If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. 940 ez form If the property is depreciable, add the sales tax to the basis for depreciation. 940 ez form For information on the basis of property, see Publication 551, Basis of Assets. 940 ez form    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. 940 ez form Do not include these taxes in gross receipts or sales. 940 ez form Excise taxes. 940 ez form   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. 940 ez form Excise taxes are discussed briefly in chapter 1. 940 ez form Fuel taxes. 940 ez form   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. 940 ez form Do not deduct these taxes as a separate item. 940 ez form   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. 940 ez form For more information, see Publication 510, Excise Taxes. 940 ez form Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. 940 ez form Table 8-1. 940 ez form When Are Entertainment Expenses Deductible? (Note. 940 ez form The following is a summary of the rules for deducting entertainment expenses. 940 ez form For more details about these rules, see Publication 463. 940 ez form ) 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. 940 ez form Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 940 ez form An ordinary expense is one that is common and accepted in your field of business, trade, or profession. 940 ez form A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. 940 ez form 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. 940 ez form   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. 940 ez form Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 940 ez form You cannot deduct expenses that are lavish or extravagant under the circumstances. 940 ez form You generally can deduct only 50% of your unreimbursed entertainment expenses. 940 ez form Travel expenses. 940 ez form   These are the ordinary and necessary expenses of traveling away from home for your business. 940 ez form You are traveling away from home if both the following conditions are met. 940 ez form 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. 940 ez form You need to get sleep or rest to meet the demands of your work while away from home. 940 ez form Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 940 ez form It includes the entire city or general area in which your business is located. 940 ez form See Publication 463 for more information. 940 ez form   The following is a brief discussion of the expenses you can deduct. 940 ez form Transportation. 940 ez form   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. 940 ez form Taxi, commuter bus, and limousine. 940 ez form   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. 940 ez form Baggage and shipping. 940 ez form   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. 940 ez form Car or truck. 940 ez form   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. 940 ez form 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. 940 ez form If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 940 ez form Meals and lodging. 940 ez form   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. 940 ez form In most cases, you can deduct only 50% of your meal expenses. 940 ez form Cleaning. 940 ez form   You can deduct the costs of dry cleaning and laundry while on your business trip. 940 ez form Telephone. 940 ez form   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. 940 ez form Tips. 940 ez form   You can deduct the tips you pay for any expense in this list. 940 ez form More information. 940 ez form   For more information about travel expenses, see Publication 463. 940 ez form Entertainment expenses. 940 ez form   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. 940 ez form In most cases, you can deduct only 50% of these expenses. 940 ez form   The following are examples of entertainment expenses. 940 ez form Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. 940 ez form Providing meals, a hotel suite, or a car to business customers or their families. 940 ez form To be deductible, the expenses must meet the rules listed in Table 8-1. 940 ez form For details about these rules, see Publication 463. 940 ez form Reimbursing your employees for expenses. 940 ez form   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. 940 ez form 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. 940 ez form For details, see chapter 11 in Publication 535. 940 ez form 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. 940 ez form Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. 940 ez form Even then, your deduction may be limited. 940 ez form To qualify to claim expenses for business use of your home, you must meet the following tests. 940 ez form 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. 940 ez form Exclusive use. 940 ez form   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. 940 ez form The area used for business can be a room or other separately identifiable space. 940 ez form The space does not need to be marked off by a permanent partition. 940 ez form   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. 940 ez form Example. 940 ez form You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. 940 ez form Your family also uses the den for recreation. 940 ez form The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. 940 ez form Exceptions to exclusive use. 940 ez form   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. 940 ez form For the storage of inventory or product samples. 940 ez form As a daycare facility. 940 ez form For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). 940 ez form Regular use. 940 ez form   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. 940 ez form 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. 940 ez form Principal place of business. 940 ez form   You can have more than one business location, including your home, for a single trade or business. 940 ez form 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. 940 ez form To determine your principal place of business, you must consider all the facts and circumstances. 940 ez form   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. 940 ez form You use it exclusively and regularly for administrative or management activities of your business. 940 ez form You have no other fixed location where you conduct substantial administrative or management activities of your business. 940 ez form   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. 940 ez form The relative importance of the activities performed at each location. 940 ez form If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. 940 ez form   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. 940 ez form However, for other ways to qualify to deduct home office expenses, see Publication 587. 940 ez form Deduction limit. 940 ez form   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. 940 ez form 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. 940 ez form   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. 940 ez form 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)). 940 ez form 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. 940 ez form Do not include in (2) above your deduction for one-half of your self-employment tax. 940 ez form   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. 940 ez form New simplified method. 940 ez form    The IRS now provides a simplified method to determine your expenses for business use of your home. 940 ez form The simplified method is an alternative to calculating and substantiating actual expenses. 940 ez form In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. 940 ez form The area you use to figure your deduction is limited to 300 square feet. 940 ez form For more information, see the Instructions for Schedule C. 940 ez form More information. 940 ez form   For more information on deducting expenses for the business use of your home, see Publication 587. 940 ez form Other Expenses You Can Deduct You may also be able to deduct the following expenses. 940 ez form See Publication 535 to find out whether you can deduct them. 940 ez form Advertising. 940 ez form Bank fees. 940 ez form Donations to business organizations. 940 ez form Education expenses. 940 ez form Energy efficient commercial buildings deduction expenses. 940 ez form Impairment-related expenses. 940 ez form Interview expense allowances. 940 ez form Licenses and regulatory fees. 940 ez form Moving machinery. 940 ez form Outplacement services. 940 ez form Penalties and fines you pay for late performance or nonperformance of a contract. 940 ez form Repairs that keep your property in a normal efficient operating condition. 940 ez form Repayments of income. 940 ez form Subscriptions to trade or professional publications. 940 ez form Supplies and materials. 940 ez form Utilities. 940 ez form Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. 940 ez form For more information, see Publication 535. 940 ez form Bribes and kickbacks. 940 ez form Charitable contributions. 940 ez form Demolition expenses or losses. 940 ez form Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. 940 ez form Lobbying expenses. 940 ez form Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. 940 ez form Personal, living, and family expenses. 940 ez form Political contributions. 940 ez form Repairs that add to the value of your property or significantly increase its life. 940 ez form Prev  Up  Next   Home   More Online Publications