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Back tax help Index A Adopted child, Adopted child. Back tax help Adoption taxpayer identification number (ATIN), Married child. Back tax help Age test (see Qualifying child) Alaska Permanent Fund dividends, Rule 6—Your Investment Income Must Be $3,300 or Less Alimony, Income That Is Not Earned Income Annuities, Income That Is Not Earned Income Armed forces, Nontaxable military pay. Back tax help , Military personnel stationed outside the United States. Back tax help , Temporary absences. Back tax help , Joint Return Test, Military personnel stationed outside the United States. Back tax help , Nontaxable combat pay. Back tax help Assistance (see Tax help) B Basic Allowance for Housing (BAH), Nontaxable military pay. Back tax help Basic Allowance for Subsistence (BAS), Nontaxable military pay. Back tax help C Child Adopted child, Adopted child. Back tax help Birth or death of, Birth or death of child. Back tax help Foster child, Relationship Test, Foster child. Back tax help , Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer, Kidnapped child, Kidnapped child. Back tax help Married child, Married child. Back tax help Child support, Income That Is Not Earned Income Clergy, Clergy. Back tax help Combat zone pay, Nontaxable combat pay. Back tax help Community property, Community property. Back tax help , Community property. Back tax help D Detailed examples, Chapter 6—Detailed Examples Disability benefits, Disability Benefits Disallowance of the EIC, Chapter 5—Disallowance of the EIC Dividend income, Income That Is Not Earned Income Divorced parents, special rule, Special rule for divorced or separated parents (or parents who live apart). Back tax help Domestic partner, Nevada, Washington, and California domestic partners. Back tax help E Earned income, Rule 7—You Must Have Earned Income, Earned Income Earned income credit (EIC), EIC Table EITC Assistant, Is There Help Online? Extended active duty, Extended active duty. Back tax help , Military personnel stationed outside the United States. Back tax help F Figuring EIC yourself, Chapter 4—Figuring and Claiming the EIC, How To Figure the EIC Yourself Filing status: Head of household, Rule 3—Your Filing Status Cannot Be Married Filing Separately Married filing separately, Rule 3—Your Filing Status Cannot Be Married Filing Separately Forms: 1040, Do I Need This Publication?, Adjusted gross income (AGI). Back tax help , No SSN. Back tax help , Form 1040. Back tax help 1040A, Adjusted gross income (AGI). Back tax help , No SSN. Back tax help , Form 1040A. Back tax help 1040EZ, Adjusted gross income (AGI). Back tax help , No SSN. Back tax help , Form 1040EZ. Back tax help 1040X, Rule 2—You Must Have a Valid Social Security Number (SSN), Filing deadline approaching and still no SSN. Back tax help 2555, Rule 5—You Cannot File Form 2555 or Form 2555-EZ 2555–EZ, Rule 5—You Cannot File Form 2555 or Form 2555-EZ 4029, Minister's housing. Back tax help , Approved Form 4361 or Form 4029, Form 4029. Back tax help 4361, Minister's housing. Back tax help , Approved Form 4361 or Form 4029, Form 4361. Back tax help 4797, Do I Need This Publication? 4868, Filing deadline approaching and still no SSN. Back tax help 8814, Do I Need This Publication? 8862, Chapter 5—Disallowance of the EIC, Form 8862 Foster care payments, Income That Is Not Earned Income Foster child, Relationship Test, Foster child. Back tax help , Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer, Fraud, Exception 2. Back tax help , Are You Prohibited From Claiming the EIC for a Period of Years? Free tax services, Free help with your tax return. Back tax help H Head of household, Community property. Back tax help , Spouse did not live with you. Back tax help , Community property. Back tax help , Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC, Applying Rule 9 to divorced or separated parents (or parents who live apart). Back tax help Help (see Tax help) Home Homeless shelter, Rule 14—You Must Have Lived in the United States More Than Half of the Year Military, Rule 14—You Must Have Lived in the United States More Than Half of the Year United States, Rule 14—You Must Have Lived in the United States More Than Half of the Year Homeless, Homeless shelter. Back tax help , Homeless shelter. Back tax help I Income that is not earned income, Income That Is Not Earned Income Individual taxpayer identification number (ITIN), Other taxpayer identification number. Back tax help , Married child. Back tax help Inmate, Earnings while an inmate. Back tax help , Figuring earned income. Back tax help Interest, Income That Is Not Earned Income Investment income, Rule 6—Your Investment Income Must Be $3,300 or Less IRS can figure EIC for you, IRS Will Figure the EIC for You J Joint return test (see Qualifying child) K Kidnapped child, Kidnapped child. Back tax help M Married child, Married child. Back tax help Married filing a joint return, Rule 4—You Must Be a U. Back tax help S. Back tax help Citizen or Resident Alien All Year Married filing separately, Spouse did not live with you. Back tax help Military Combat pay, Nontaxable military pay. Back tax help Nontaxable pay, Nontaxable military pay. Back tax help Outside U. Back tax help S. Back tax help , Military personnel stationed outside the United States. Back tax help Minister, Net earnings from self-employment. Back tax help , Minister's housing. Back tax help , Church employees. Back tax help N Net earnings, self-employment, Net earnings from self-employment. Back tax help Nonresident alien, Rule 4—You Must Be a U. Back tax help S. Back tax help Citizen or Resident Alien All Year, Step 1. Back tax help O Online help EITC Assistant, Is There Help Online? P Parents, divorced or separated, Married child. Back tax help , Examples. Back tax help , Special rule for divorced or separated parents (or parents who live apart). Back tax help Passive activity, Worksheet 1. Back tax help Investment Income If You Are Filing Form 1040 Pensions, Income That Is Not Earned Income Permanently and totally disabled, Permanently and totally disabled. Back tax help Prisoner, Figuring earned income. Back tax help Publications (see Tax help) Q Qualifying child, Can I Claim the EIC?, Do I Have To Have A Child To Qualify For The EIC?, Chapter 2—Rules If You Have a Qualifying Child Age test, Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests, Age Test Home, Residency Test Joint return test, Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Permanently and totally disabled, Permanently and totally disabled. Back tax help Relationship test, Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Residency test, Residency Test United States, Residency Test R Railroad retirement benefits, Income That Is Not Earned Income Registered domestic partner, Nevada, Washington, and California domestic partners. Back tax help Relationship test (see Qualifying child) Reminders, Reminders Residency test (see Qualifying child) S Salaries, wages, and tips, Earned Income, Wages, salaries, and tips. Back tax help , Earned Income Schedules: C, EIC Worksheet A. Back tax help , EIC Worksheet B. Back tax help C-EZ, EIC Worksheet A. Back tax help , EIC Worksheet B. Back tax help EIC, Chapter 2—Rules If You Have a Qualifying Child, Kidnapped child. Back tax help , Figuring earned income. Back tax help , Nontaxable combat pay. Back tax help , How To Figure the EIC Yourself, When to use the optional methods of figuring net earnings. Back tax help , Schedule EIC SE, Figuring earned income. Back tax help , Clergy. Back tax help , Church employees. Back tax help , EIC Worksheet A. Back tax help , EIC Worksheet B. Back tax help , Net earnings from self-employment $400 or more. Back tax help , When to use the optional methods of figuring net earnings. Back tax help , When both spouses have self-employment income. Back tax help School, School defined. Back tax help Self-employed persons, Rule 7—You Must Have Earned Income, Figuring earned income. Back tax help , EIC Worksheet B. Back tax help Self-employment income, Earned Income Self-employment tax, Net earnings from self-employment $400 or more. Back tax help Separated parents, special rule, Married child. Back tax help Social security benefits, Income That Is Not Earned Income Social security number (SSN), Rule 2—You Must Have a Valid Social Security Number (SSN), Valid for work only with INS authorization or DHS authorization. Back tax help , No SSN. Back tax help , Getting an SSN. Back tax help , Married child. Back tax help , Exception for math or clerical errors. Back tax help Statutory employee, Statutory employee. Back tax help , Figuring earned income. Back tax help , EIC Worksheet A. Back tax help , Statutory employees. Back tax help Strike benefits, Strike benefits. Back tax help Student, Student defined. Back tax help T Tax help, How To Get Tax Help Taxpayer identification number Adoption identification number (ATIN), Married child. Back tax help Individual taxpayer identification number (ITIN), Other taxpayer identification number. Back tax help Social security number (SSN), Other taxpayer identification number. Back tax help Tiebreaker rules, Tiebreaker rules. Back tax help Tips, wages, and salaries, Earned Income, Wages, salaries, and tips. Back tax help , Earned Income TTY/TDD information, How To Get Tax Help U Unemployment compensation, Income That Is Not Earned Income United States, United States. Back tax help V Veterans' benefits, Income That Is Not Earned Income W Wages, salaries, and tips, Earned Income, Wages, salaries, and tips. Back tax help , Earned Income Welfare benefits, Income That Is Not Earned Income Workers' compensation benefits, Income That Is Not Earned Income Workfare payments, Workfare payments. Back tax help Worksheet 1, Worksheet 1. Back tax help Investment Income If You Are Filing Form 1040 Worksheet 2, Worksheet 2. 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Back tax help 8. Back tax help   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. Back tax help Cash method. Back tax help Car and Truck ExpensesOffice in the home. Back tax help Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. Back tax help InsuranceHow to figure the deduction. Back tax help Interest Legal and Professional FeesTax preparation fees. Back tax help Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. Back tax help Taxi, commuter bus, and limousine. Back tax help Baggage and shipping. Back tax help Car or truck. Back tax help Meals and lodging. Back tax help Cleaning. Back tax help Telephone. Back tax help Tips. Back tax help More information. Back tax help Business Use of Your HomeExceptions to exclusive use. Back tax help Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. Back tax help These costs are known as business expenses. Back tax help These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. Back tax help To be deductible, a business expense must be both ordinary and necessary. Back tax help An ordinary expense is one that is common and accepted in your field of business. Back tax help A necessary expense is one that is helpful and appropriate for your business. Back tax help An expense does not have to be indispensable to be considered necessary. Back tax help For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. Back tax help If you have an expense that is partly for business and partly personal, separate the personal part from the business part. Back tax help The personal part is not deductible. Back tax help 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. Back tax help Bad Debts If someone owes you money you cannot collect, you have a bad debt. Back tax help There are two kinds of bad debts, business bad debts and nonbusiness bad debts. Back tax help A business bad debt is generally one that comes from operating your trade or business. Back tax help You may be able to deduct business bad debts as an expense on your business tax return. Back tax help Business bad debt. Back tax help   A business bad debt is a loss from the worthlessness of a debt that was either of the following. Back tax help Created or acquired in your business. Back tax help Closely related to your business when it became partly or totally worthless. Back tax help A debt is closely related to your business if your primary motive for incurring the debt is a business reason. Back tax help   Business bad debts are mainly the result of credit sales to customers. Back tax help They can also be the result of loans to suppliers, clients, employees, or distributors. Back tax help Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. Back tax help If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. Back tax help    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. Back tax help Accrual method. Back tax help   If you use an accrual method of accounting, you normally report income as you earn it. Back tax help You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. Back tax help Cash method. Back tax help   If you use the cash method of accounting, you normally report income when you receive payment. Back tax help 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. Back tax help More information. Back tax help   For more information about business bad debts, see chapter 10 in Publication 535. Back tax help Nonbusiness bad debts. Back tax help   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). Back tax help For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. Back tax help 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. Back tax help You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. Back tax help 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. Back tax help See Form 8936 and Form 8910 for more information. Back tax help Local transportation expenses. Back tax help   Local transportation expenses include the ordinary and necessary costs of all the following. Back tax help 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. Back tax help Tax home is defined later. Back tax help Visiting clients or customers. Back tax help Going to a business meeting away from your regular workplace. Back tax help Getting from your home to a temporary workplace when you have one or more regular places of work. Back tax help These temporary workplaces can be either within the area of your tax home or outside that area. Back tax help Local business transportation does not include expenses you have while traveling away from home overnight. Back tax help Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. Back tax help However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Back tax help   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Back tax help It includes the entire city or general area in which your business or work is located. Back tax help Example. Back tax help You operate a printing business out of rented office space. Back tax help You use your van to deliver completed jobs to your customers. Back tax help You can deduct the cost of round-trip transportation between your customers and your print shop. Back tax help    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. Back tax help These costs are personal commuting expenses. Back tax help Office in the home. Back tax help   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. Back tax help For more information, see Business Use of Your Home, later. Back tax help Example. Back tax help You are a graphics designer. Back tax help You operate your business out of your home. Back tax help Your home qualifies as your principal place of business. Back tax help You occasionally have to drive to your clients to deliver your completed work. Back tax help You can deduct the cost of the round-trip transportation between your home and your clients. Back tax help 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. Back tax help Standard mileage rate. Back tax help Actual expenses. Back tax help Standard mileage rate. Back tax help   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. Back tax help For 2013, the standard mileage rate is 56. Back tax help 5 cents per mile. Back tax help    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. Back tax help Choosing the standard mileage rate. Back tax help   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. Back tax help In later years, you can choose to use either the standard mileage rate or actual expenses. Back tax help   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). Back tax help Standard mileage rate not allowed. Back tax help   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. Back tax help Parking fees and tolls. Back tax help   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Back tax help (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Back tax help ) Actual expenses. Back tax help   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. Back tax help    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. Back tax help   Actual car expenses include the costs of the following items. Back tax help 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. Back tax help You can divide your expenses based on the miles driven for each purpose. Back tax help Example. Back tax help You are the sole proprietor of a flower shop. Back tax help You drove your van 20,000 miles during the year. Back tax help 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). Back tax help You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Back tax help More information. Back tax help   For more information about the rules for claiming car and truck expenses, see Publication 463. Back tax help Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. Back tax help 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. Back tax help For details, see chapter 11 in Publication 535. Back tax help 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. Back tax help 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. Back tax help You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. Back tax help This method of deducting the cost of business property is called depreciation. Back tax help The discussion here is brief. Back tax help You will find more information about depreciation in Publication 946. Back tax help What property can be depreciated?   You can depreciate property if it meets all the following requirements. Back tax help It must be property you own. Back tax help It must be used in business or held to produce income. Back tax help You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. Back tax help It must have a useful life that extends substantially beyond the year it is placed in service. Back tax help 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. Back tax help You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. Back tax help It must not be excepted property. Back tax help This includes property placed in service and disposed of in the same year. Back tax help Repairs. Back tax help    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. Back tax help You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. Back tax help Depreciation method. Back tax help   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Back tax help MACRS is discussed in detail in Publication 946. Back tax help Section 179 deduction. Back tax help   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Back tax help This deduction is known as the “section 179 deduction. Back tax help ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). Back tax help See IRC 179(e). Back tax help   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. Back tax help 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). Back tax help Special rules apply to trucks and vans. Back tax help For more information, see Publication 946. Back tax help It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. Back tax help    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. Back tax help For more information, see the Instructions for Form 4562 or Publication 946. Back tax help Listed property. Back tax help   You must follow special rules and recordkeeping requirements when depreciating listed property. Back tax help Listed property is any of the following. Back tax help Most passenger automobiles. Back tax help Most other property used for transportation. Back tax help Any property of a type generally used for entertainment, recreation, or amusement. Back tax help Certain computers and related peripheral equipment. Back tax help   For more information about listed property, see Publication 946. Back tax help Form 4562. Back tax help   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. Back tax help Depreciation on property placed in service during the current tax year. Back tax help A section 179 deduction. Back tax help Depreciation on any listed property (regardless of when it was placed in service). Back tax help    If you have to use Form 4562, you must file Schedule C. Back tax help You cannot use Schedule C-EZ. Back tax help   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. Back tax help The pay may be in cash, property, or services. Back tax help To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. Back tax help In addition, the pay must meet both the following tests. Back tax help The pay must be reasonable. Back tax help The pay must be for services performed. Back tax help Chapter 2 in Publication 535 explains and defines these requirements. Back tax help You cannot deduct your own salary or any personal withdrawals you make from your business. Back tax help As a sole proprietor, you are not an employee of the business. Back tax help If you had employees during the year, you must use Schedule C. Back tax help You cannot use Schedule C-EZ. Back tax help Kinds of pay. Back tax help   Some of the ways you may provide pay to your employees are listed below. Back tax help For an explanation of each of these items, see chapter 2 in Publication 535. Back tax help Awards. Back tax help Bonuses. Back tax help Education expenses. Back tax help Fringe benefits (discussed later). Back tax help Loans or advances you do not expect the employee to repay if they are for personal services actually performed. Back tax help Property you transfer to an employee as payment for services. Back tax help Reimbursements for employee business expenses. Back tax help Sick pay. Back tax help Vacation pay. Back tax help Fringe benefits. Back tax help   A fringe benefit is a form of pay for the performance of services. Back tax help The following are examples of fringe benefits. Back tax help Benefits under qualified employee benefit programs. Back tax help Meals and lodging. Back tax help The use of a car. Back tax help Flights on airplanes. Back tax help Discounts on property or services. Back tax help Memberships in country clubs or other social clubs. Back tax help Tickets to entertainment or sporting events. Back tax help   Employee benefit programs include the following. Back tax help Accident and health plans. Back tax help Adoption assistance. Back tax help Cafeteria plans. Back tax help Dependent care assistance. Back tax help Educational assistance. Back tax help Group-term life insurance coverage. Back tax help Welfare benefit funds. Back tax help   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. Back tax help 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. Back tax help If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. Back tax help    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. Back tax help For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Back tax help Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. Back tax help Fire, theft, flood, or similar insurance. Back tax help Credit insurance that covers losses from business bad debts. Back tax help Group hospitalization and medical insurance for employees, including long-term care insurance. Back tax help Liability insurance. Back tax help Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Back tax help 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. Back tax help Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Back tax help Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Back tax help Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Back tax help 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. Back tax help If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Back tax help Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. Back tax help Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Back tax help Nondeductible premiums. Back tax help   You cannot deduct premiums on the following kinds of insurance. Back tax help Self-insurance reserve funds. Back tax help You cannot deduct amounts credited to a reserve set up for self-insurance. Back tax help This applies even if you cannot get business insurance coverage for certain business risks. Back tax help However, your actual losses may be deductible. Back tax help For more information, see Publication 547, Casualties, Disasters, and Thefts. Back tax help Loss of earnings. Back tax help You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. Back tax help However, see item (8) in the previous list. Back tax help Certain life insurance and annuities. Back tax help 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. Back tax help 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. Back tax help 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. Back tax help 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. Back tax help The disallowance applies without regard to whom the policy covers. Back tax help Insurance to secure a loan. Back tax help 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. Back tax help Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Back tax help In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Back tax help Self-employed health insurance deduction. Back tax help   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. Back tax help How to figure the deduction. Back tax help   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Back tax help However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. Back tax help You have more than one source of income subject to self-employment tax. Back tax help You file Form 2555 or Form 2555-EZ (relating to foreign earned income). Back tax help You are using amounts paid for qualified long-term care insurance to figure the deduction. Back tax help Prepayment. Back tax help   You cannot deduct expenses in advance, even if you pay them in advance. Back tax help 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. Back tax help Example. Back tax help In 2013, you signed a 3-year insurance contract. Back tax help 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. Back tax help You can deduct in 2014 and 2015 the premium allocable to those years. Back tax help More information. Back tax help   For more information about deducting insurance, see chapter 6 in Publication 535. Back tax help 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. Back tax help Interest relates to your business if you use the proceeds of the loan for a business expense. Back tax help It does not matter what type of property secures the loan. Back tax help You can deduct interest on a debt only if you meet all of the following requirements. Back tax help You are legally liable for that debt. Back tax help Both you and the lender intend that the debt be repaid. Back tax help You and the lender have a true debtor-creditor relationship. Back tax help You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. Back tax help If a loan is part business and part personal, you must divide the interest between the personal part and the business part. Back tax help Example. Back tax help In 2013, you paid $600 interest on a car loan. Back tax help During 2013, you used the car 60% for business and 40% for personal purposes. Back tax help You are claiming actual expenses on the car. Back tax help You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. Back tax help The remaining interest of $240 is a nondeductible personal expense. Back tax help More information. Back tax help   For more information about deducting interest, see chapter 4 in Publication 535. Back tax help That chapter explains the following items. Back tax help Interest you can deduct. Back tax help Interest you cannot deduct. Back tax help How to allocate interest between personal and business use. Back tax help When to deduct interest. Back tax help The rules for a below-market interest rate loan. Back tax help (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. Back tax help ) 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. Back tax help However, you usually cannot deduct legal fees you pay to acquire business assets. Back tax help Add them to the basis of the property. Back tax help 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. Back tax help 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. Back tax help For more information, see Publication 529, Miscellaneous Deductions. Back tax help Tax preparation fees. Back tax help   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. Back tax help You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Back tax help   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. Back tax help Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. Back tax help SEP (Simplified Employee Pension) plans. Back tax help SIMPLE (Savings Incentive Match Plan for Employees) plans. Back tax help Qualified plans (including Keogh or H. Back tax help R. Back tax help 10 plans). Back tax help SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. Back tax help You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. Back tax help If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. Back tax help You can also deduct trustees' fees if contributions to the plan do not cover them. Back tax help Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Back tax help 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. Back tax help Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. Back tax help These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. Back tax help For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Back tax help Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. Back tax help Rent Expense Rent is any amount you pay for the use of property you do not own. Back tax help In general, you can deduct rent as a business expense only if the rent is for property you use in your business. Back tax help If you have or will receive equity in or title to the property, you cannot deduct the rent. Back tax help Unreasonable rent. Back tax help   You cannot take a rental deduction for unreasonable rents. Back tax help Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Back tax help 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. Back tax help Rent is not unreasonable just because it is figured as a percentage of gross receipts. Back tax help   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Back tax help For a list of the other related persons, see section 267 of the Internal Revenue Code. Back tax help Rent on your home. Back tax help   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. Back tax help You must meet the requirements for business use of your home. Back tax help For more information, see Business Use of Your Home , later. Back tax help Rent paid in advance. Back tax help   Generally, rent paid in your business is deductible in the year paid or accrued. Back tax help 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. Back tax help You can deduct the rest of your payment only over the period to which it applies. Back tax help More information. Back tax help   For more information about rent, see chapter 3 in Publication 535. Back tax help Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. Back tax help Income taxes. Back tax help   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. Back tax help You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. Back tax help Do not deduct federal income tax. Back tax help Employment taxes. Back tax help   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. Back tax help Employment taxes are discussed briefly in chapter 1. Back tax help You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Back tax help Deduct these payments as taxes. Back tax help Self-employment tax. Back tax help   You can deduct one-half of your self-employment tax on line 27 of Form 1040. Back tax help Self-employment tax is discussed in chapters 1 and 10. Back tax help Personal property tax. Back tax help   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. Back tax help   You can also deduct registration fees for the right to use property within a state or local area. Back tax help Example. Back tax help May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. Back tax help They had to pay $25 for their annual state license tags and $20 for their city registration sticker. Back tax help They also paid $235 in city personal property tax on the car, for a total of $280. Back tax help They are claiming their actual car expenses. Back tax help Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. Back tax help Real estate taxes. Back tax help   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. Back tax help Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Back tax help 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. Back tax help   For more information about real estate taxes, see chapter 5 in Publication 535. Back tax help That chapter explains special rules for deducting the following items. Back tax help Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. Back tax help Real estate taxes when you buy or sell property during the year. Back tax help 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. Back tax help Sales tax. Back tax help   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. Back tax help 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. Back tax help If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Back tax help If the property is depreciable, add the sales tax to the basis for depreciation. Back tax help For information on the basis of property, see Publication 551, Basis of Assets. Back tax help    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. Back tax help Do not include these taxes in gross receipts or sales. Back tax help Excise taxes. Back tax help   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. Back tax help Excise taxes are discussed briefly in chapter 1. Back tax help Fuel taxes. Back tax help   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. Back tax help Do not deduct these taxes as a separate item. Back tax help   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Back tax help For more information, see Publication 510, Excise Taxes. Back tax help Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. Back tax help Table 8-1. Back tax help When Are Entertainment Expenses Deductible? (Note. Back tax help The following is a summary of the rules for deducting entertainment expenses. Back tax help For more details about these rules, see Publication 463. Back tax help ) 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. Back tax help Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Back tax help An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Back tax help A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Back tax help 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. Back tax help   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. Back tax help Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Back tax help You cannot deduct expenses that are lavish or extravagant under the circumstances. Back tax help You generally can deduct only 50% of your unreimbursed entertainment expenses. Back tax help Travel expenses. Back tax help   These are the ordinary and necessary expenses of traveling away from home for your business. Back tax help You are traveling away from home if both the following conditions are met. Back tax help 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. Back tax help You need to get sleep or rest to meet the demands of your work while away from home. Back tax help Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Back tax help It includes the entire city or general area in which your business is located. Back tax help See Publication 463 for more information. Back tax help   The following is a brief discussion of the expenses you can deduct. Back tax help Transportation. Back tax help   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. Back tax help Taxi, commuter bus, and limousine. Back tax help   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. Back tax help Baggage and shipping. Back tax help   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. Back tax help Car or truck. Back tax help   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. Back tax help 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. Back tax help If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Back tax help Meals and lodging. Back tax help   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. Back tax help In most cases, you can deduct only 50% of your meal expenses. Back tax help Cleaning. Back tax help   You can deduct the costs of dry cleaning and laundry while on your business trip. Back tax help Telephone. Back tax help   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. Back tax help Tips. Back tax help   You can deduct the tips you pay for any expense in this list. Back tax help More information. Back tax help   For more information about travel expenses, see Publication 463. Back tax help Entertainment expenses. Back tax help   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. Back tax help In most cases, you can deduct only 50% of these expenses. Back tax help   The following are examples of entertainment expenses. Back tax help Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. Back tax help Providing meals, a hotel suite, or a car to business customers or their families. Back tax help To be deductible, the expenses must meet the rules listed in Table 8-1. Back tax help For details about these rules, see Publication 463. Back tax help Reimbursing your employees for expenses. Back tax help   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. Back tax help 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. Back tax help For details, see chapter 11 in Publication 535. Back tax help 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. Back tax help Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. Back tax help Even then, your deduction may be limited. Back tax help To qualify to claim expenses for business use of your home, you must meet the following tests. Back tax help 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. Back tax help Exclusive use. Back tax help   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Back tax help The area used for business can be a room or other separately identifiable space. Back tax help The space does not need to be marked off by a permanent partition. Back tax help   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. Back tax help Example. Back tax help You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Back tax help Your family also uses the den for recreation. Back tax help The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. Back tax help Exceptions to exclusive use. Back tax help   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. Back tax help For the storage of inventory or product samples. Back tax help As a daycare facility. Back tax help For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Back tax help Regular use. Back tax help   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. Back tax help 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. Back tax help Principal place of business. Back tax help   You can have more than one business location, including your home, for a single trade or business. Back tax help 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. Back tax help To determine your principal place of business, you must consider all the facts and circumstances. Back tax help   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Back tax help You use it exclusively and regularly for administrative or management activities of your business. Back tax help You have no other fixed location where you conduct substantial administrative or management activities of your business. Back tax help   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. Back tax help The relative importance of the activities performed at each location. Back tax help If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. Back tax help   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Back tax help However, for other ways to qualify to deduct home office expenses, see Publication 587. Back tax help Deduction limit. Back tax help   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. Back tax help 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. Back tax help   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. Back tax help 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)). Back tax help 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. Back tax help Do not include in (2) above your deduction for one-half of your self-employment tax. Back tax help   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Back tax help New simplified method. Back tax help    The IRS now provides a simplified method to determine your expenses for business use of your home. Back tax help The simplified method is an alternative to calculating and substantiating actual expenses. Back tax help In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. Back tax help The area you use to figure your deduction is limited to 300 square feet. Back tax help For more information, see the Instructions for Schedule C. Back tax help More information. Back tax help   For more information on deducting expenses for the business use of your home, see Publication 587. Back tax help Other Expenses You Can Deduct You may also be able to deduct the following expenses. Back tax help See Publication 535 to find out whether you can deduct them. Back tax help Advertising. Back tax help Bank fees. Back tax help Donations to business organizations. Back tax help Education expenses. Back tax help Energy efficient commercial buildings deduction expenses. Back tax help Impairment-related expenses. Back tax help Interview expense allowances. Back tax help Licenses and regulatory fees. Back tax help Moving machinery. Back tax help Outplacement services. Back tax help Penalties and fines you pay for late performance or nonperformance of a contract. Back tax help Repairs that keep your property in a normal efficient operating condition. Back tax help Repayments of income. Back tax help Subscriptions to trade or professional publications. Back tax help Supplies and materials. Back tax help Utilities. Back tax help Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. Back tax help For more information, see Publication 535. Back tax help Bribes and kickbacks. Back tax help Charitable contributions. Back tax help Demolition expenses or losses. Back tax help Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. Back tax help Lobbying expenses. Back tax help Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. Back tax help Personal, living, and family expenses. Back tax help Political contributions. Back tax help Repairs that add to the value of your property or significantly increase its life. Back tax help Prev  Up  Next   Home   More Online Publications