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Efile 2012

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Efile 2012

Efile 2012 11. Efile 2012   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. Efile 2012 Kickbacks. Efile 2012 Form 1099-MISC. Efile 2012 Exception. Efile 2012 Tax preparation fees. Efile 2012 Covered executive branch official. Efile 2012 Exceptions to denial of deduction. Efile 2012 Indirect political contributions. Efile 2012 Type of deduction. Efile 2012 Repayment—$3,000 or less. Efile 2012 Repayment—over $3,000. Efile 2012 Method 1. Efile 2012 Method 2. Efile 2012 Repayment does not apply. Efile 2012 Year of deduction (or credit). Efile 2012 Telephone. Efile 2012 What's New Standard mileage rate. Efile 2012  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. Efile 2012 5 cents per mile. Efile 2012 For more information, see Car and truck expenses under Miscellaneous Expenses. Efile 2012 Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. Efile 2012 Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. Efile 2012 Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. Efile 2012 If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Efile 2012 To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. Efile 2012 Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. Efile 2012 For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Efile 2012 Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. Efile 2012 If the expenses are substantiated, you can deduct the allowable amount on your tax return. Efile 2012 Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. Efile 2012 For example, you can deduct 100% of the cost of meals on your business books and records. Efile 2012 However, only 50% of these costs are allowed by law as a tax deduction. Efile 2012 How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. Efile 2012 If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Efile 2012 If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. Efile 2012 If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. Efile 2012 See Table 11-1 , Reporting Reimbursements. Efile 2012 Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Efile 2012 Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. Efile 2012 An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. Efile 2012 The advance is reasonably calculated not to exceed the amount of anticipated expenses. Efile 2012 You make the advance within a reasonable period of time of your employee paying or incurring the expense. Efile 2012 If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. Efile 2012 Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Efile 2012 Adequate accounting. Efile 2012   Your employees must adequately account to you for their travel, meals, and entertainment expenses. Efile 2012 They must give you documentary evidence of their travel, mileage, and other employee business expenses. Efile 2012 This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. Efile 2012 Excess reimbursement or allowance. Efile 2012   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. Efile 2012 The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Efile 2012 Reasonable period of time. Efile 2012   A reasonable period of time depends on the facts and circumstances. Efile 2012 Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Efile 2012 You give an advance within 30 days of the time the employee pays or incurs the expense. Efile 2012 Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Efile 2012 Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Efile 2012 You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. Efile 2012 How to deduct. Efile 2012   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. Efile 2012 Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Efile 2012 If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). Efile 2012   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. Efile 2012 S. Efile 2012 Corporation Income Tax Return. Efile 2012 If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. Efile 2012 Table 11-1. Efile 2012 Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. Efile 2012 Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Efile 2012 Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. Efile 2012 Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Efile 2012 The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Efile 2012 Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. Efile 2012 The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Efile 2012 A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. Efile 2012 No reimbursement plan The entire amount as wages in box 1. Efile 2012 Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. Efile 2012 In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. Efile 2012 Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Efile 2012 Federal rate. Efile 2012   The federal rate can be figured using any one of the following methods. Efile 2012 For car expenses: The standard mileage rate. Efile 2012 A fixed and variable rate (FAVR). Efile 2012 For per diem amounts: The regular federal per diem rate. Efile 2012 The standard meal allowance. Efile 2012 The high-low rate. Efile 2012 Car allowance. Efile 2012   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Efile 2012 Beginning in 2013, the standard business mileage rate is 56. Efile 2012 5 cents per mile. Efile 2012   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Efile 2012 This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. Efile 2012 ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Efile 2012 ). Efile 2012 For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Efile 2012 irs. Efile 2012 gov/irb/2010-51_IRB/ar14. Efile 2012 html and Notice 2012-72, available at www. Efile 2012 irs. Efile 2012 gov/irb/2012-50_IRB/ar10. Efile 2012 html. Efile 2012 Per diem allowance. Efile 2012   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. Efile 2012 Regular federal per diem rate. Efile 2012   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. Efile 2012 It has two components: Lodging expense, and Meal and incidental expense (M&IE). Efile 2012 The rates are different for different locations. Efile 2012 Publication 1542 lists the rates in the continental United States. Efile 2012 Standard meal allowance. Efile 2012   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Efile 2012 You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). Efile 2012 Internet access. Efile 2012    Per diem rates are available on the Internet. Efile 2012 You can access per diem rates at www. Efile 2012 gsa. Efile 2012 gov/perdiemrates. Efile 2012 High-low method. Efile 2012   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Efile 2012 It eliminates the need to keep a current list of the per diem rate for each city. Efile 2012   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. Efile 2012 All other areas have a per diem amount of $163 ($52 for M&IE). Efile 2012 The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Efile 2012   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Efile 2012 The rate for all other locations increased to $170 ($52 for M&IE). Efile 2012 For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. Efile 2012 However, you must use the same rate for all employees reimbursed under the high-low method. Efile 2012   For more information about the high-low method, see Notice 2013-65, available at www. Efile 2012 irs. Efile 2012 gov/irb/2013-44_IRB/ar13. Efile 2012 html. Efile 2012 See Publication 1542 (available on the Internet at IRS. Efile 2012 gov) for the current per diem rates for all locations. Efile 2012 Reporting per diem and car allowances. Efile 2012   The following discussion explains how to report per diem and car allowances. Efile 2012 The manner in which you report them depends on how the allowance compares to the federal rate. Efile 2012 See Table 11-1. Efile 2012 Allowance less than or equal to the federal rate. Efile 2012   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. Efile 2012 Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Efile 2012 See How to deduct under Accountable Plans, earlier. Efile 2012 Allowance more than the federal rate. Efile 2012   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Efile 2012   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Efile 2012 Deduct it as travel expenses (as explained above). Efile 2012 This part of the allowance is treated as reimbursed under an accountable plan. Efile 2012   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. Efile 2012 Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Efile 2012 This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Efile 2012 Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. Efile 2012 The deduction limit applies even if you reimburse them for 100% of the expenses. Efile 2012 Application of the 50% limit. Efile 2012   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. Efile 2012 It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Efile 2012 The deduction limit may also apply to meals you furnish on your premises to your employees. Efile 2012 Related expenses. Efile 2012   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. Efile 2012 Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. Efile 2012 However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. Efile 2012 Amount subject to 50% limit. Efile 2012   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. Efile 2012 The per diem allowance. Efile 2012 The federal rate for M&IE. Efile 2012   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. Efile 2012 If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. Efile 2012 Meal expenses when subject to “hours of service” limits. Efile 2012   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. Efile 2012   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Efile 2012 De minimis (minimal) fringe benefit. Efile 2012   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. Efile 2012 See Publication 15-B for additional information on de minimis fringe benefits. Efile 2012 Company cafeteria or executive dining room. Efile 2012   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Efile 2012 This includes the cost of maintaining the facilities for providing the food and beverages. Efile 2012 These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). Efile 2012 Employee activities. Efile 2012   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. Efile 2012 The benefit must be primarily for your employees who are not highly compensated. Efile 2012   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Efile 2012 Owned a 10% or more interest in the business during the year or the preceding year. Efile 2012 An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Efile 2012 Received more than $115,000 in pay for the preceding year. Efile 2012 You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. Efile 2012   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Efile 2012 Meals or entertainment treated as compensation. Efile 2012   The 50% limit does not apply to either of the following. Efile 2012 Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. Efile 2012 Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. Efile 2012 Sales of meals or entertainment. Efile 2012   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Efile 2012 For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. Efile 2012 The 50% limit does not apply to this expense. Efile 2012 Providing meals or entertainment to general public to promote goodwill. Efile 2012   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Efile 2012 The 50% limit does not apply to this expense. Efile 2012 Director, stockholder, or employee meetings. Efile 2012   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Efile 2012 You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Efile 2012 These expenses are subject to the 50% limit. Efile 2012 Trade association meetings. Efile 2012   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Efile 2012 These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Efile 2012 Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Efile 2012 All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Efile 2012 The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Efile 2012 You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. Efile 2012 Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Efile 2012 Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Efile 2012 Advertising expenses. Efile 2012   You generally can deduct reasonable advertising expenses that are directly related to your business activities. Efile 2012 Generally, you cannot deduct amounts paid to influence legislation (i. Efile 2012 e. Efile 2012 , lobbying). Efile 2012 See Lobbying expenses , later. Efile 2012   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. Efile 2012 For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Efile 2012 S. Efile 2012 Savings Bonds, or to participate in similar causes is usually deductible. Efile 2012 Anticipated liabilities. Efile 2012   Anticipated liabilities or reserves for anticipated liabilities are not deductible. Efile 2012 For example, assume you sold 1-year TV service contracts this year totaling $50,000. Efile 2012 From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Efile 2012 You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Efile 2012 You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Efile 2012 Bribes and kickbacks. Efile 2012   Engaging in the payment of bribes or kickbacks is a serious criminal matter. Efile 2012 Such activity could result in criminal prosecution. Efile 2012 Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. Efile 2012   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. Efile 2012 Meaning of “generally enforced. Efile 2012 ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. Efile 2012 For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. Efile 2012 Kickbacks. Efile 2012   A kickback is a payment for referring a client, patient, or customer. Efile 2012 The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. Efile 2012 In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. Efile 2012   For example, the Yard Corporation is in the business of repairing ships. Efile 2012 It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Efile 2012 Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. Efile 2012 These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Efile 2012 Form 1099-MISC. Efile 2012   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. Efile 2012 See Form 1099-MISC for more information. Efile 2012 Car and truck expenses. Efile 2012   The costs of operating a car, truck, or other vehicle in your business are deductible. Efile 2012 For more information on how to figure your deduction, see Publication 463. Efile 2012 Charitable contributions. Efile 2012   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Efile 2012 If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Efile 2012 However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Efile 2012 See the Instructions for Form 1120 for more information. Efile 2012 Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Efile 2012 Example. Efile 2012 You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Efile 2012 The purpose of the ad was to encourage readers to buy your products. Efile 2012 Your payment is not a charitable contribution. Efile 2012 You can deduct it as an advertising expense. Efile 2012 Example. Efile 2012 You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Efile 2012 Your payment is not a charitable contribution. Efile 2012 You can deduct it as a business expense. Efile 2012 See Publication 526 for a discussion of donated inventory, including capital gain property. Efile 2012 Club dues and membership fees. Efile 2012   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. Efile 2012 This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Efile 2012 Exception. Efile 2012   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Efile 2012 Boards of trade. Efile 2012 Business leagues. Efile 2012 Chambers of commerce. Efile 2012 Civic or public service organizations. Efile 2012 Professional organizations such as bar associations and medical associations. Efile 2012 Real estate boards. Efile 2012 Trade associations. Efile 2012 Credit card convenience fees. Efile 2012   Credit card companies charge a fee to businesses who accept their cards. Efile 2012 This fee when paid or incurred by the business can be deducted as a business expense. Efile 2012 Damages recovered. Efile 2012   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. Efile 2012 You must include this compensation in your income. Efile 2012 However, you may be able to take a special deduction. Efile 2012 The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Efile 2012 The deduction is the smaller of the following. Efile 2012 The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. Efile 2012 Your losses from the injury you have not deducted. Efile 2012 Demolition expenses or losses. Efile 2012   Amounts paid or incurred to demolish a structure are not deductible. Efile 2012 These amounts are added to the basis of the land where the demolished structure was located. Efile 2012 Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Efile 2012 Education expenses. Efile 2012   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Efile 2012 See Education Expenses in chapter 2. Efile 2012   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Efile 2012 You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. Efile 2012 For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. Efile 2012   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. Efile 2012 This is true even if the education maintains or improves skills presently required in your business. Efile 2012 For more information on education expenses, see Publication 970. Efile 2012 Franchise, trademark, trade name. Efile 2012   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). Efile 2012   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. Efile 2012   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. Efile 2012 Impairment-related expenses. Efile 2012   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. Efile 2012   You are disabled if you have either of the following. Efile 2012 A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Efile 2012 A physical or mental impairment that substantially limits one or more of your major life activities. Efile 2012   The expense qualifies as a business expense if all the following apply. Efile 2012 Your work clearly requires the expense for you to satisfactorily perform that work. Efile 2012 The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Efile 2012 Their treatment is not specifically provided for under other tax law provisions. Efile 2012 Example. Efile 2012 You are blind. Efile 2012 You must use a reader to do your work, both at and away from your place of work. Efile 2012 The reader's services are only for your work. Efile 2012 You can deduct your expenses for the reader as a business expense. Efile 2012 Internet-related expenses. Efile 2012   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Efile 2012 If you are starting a business you may have to amortize these expenses as start-up costs. Efile 2012 For more information about amortizing start-up and organizational costs, see chapter 8. Efile 2012 Interview expense allowances. Efile 2012   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Efile 2012 You can deduct the reimbursements as a business expense. Efile 2012 However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Efile 2012 Legal and professional fees. Efile 2012   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. Efile 2012 However, usually legal fees you pay to acquire business assets are not deductible. Efile 2012 These costs are added to the basis of the property. Efile 2012   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. Efile 2012 If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. Efile 2012 The result is the portion of the invoice attributable to business expenses. Efile 2012 The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Efile 2012   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Efile 2012 However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Efile 2012 See Publication 529, Miscellaneous Deductions. Efile 2012 Tax preparation fees. Efile 2012   The cost of hiring a tax professional, such as a C. Efile 2012 P. Efile 2012 A. Efile 2012 , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. Efile 2012 Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Efile 2012   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. Efile 2012 Licenses and regulatory fees. Efile 2012   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Efile 2012 Some licenses and fees may have to be amortized. Efile 2012 See chapter 8 for more information. Efile 2012 Lobbying expenses. Efile 2012   Generally, lobbying expenses are not deductible. Efile 2012 Lobbying expenses include amounts paid or incurred for any of the following activities. Efile 2012 Influencing legislation. Efile 2012 Participating in or intervening in any political campaign for, or against, any candidate for public office. Efile 2012 Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Efile 2012 Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Efile 2012 Researching, preparing, planning, or coordinating any of the preceding activities. Efile 2012   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. Efile 2012 For information on making this allocation, see section 1. Efile 2012 162-28 of the regulations. Efile 2012   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Efile 2012 The organization conducts lobbying activities on matters of direct financial interest to your business. Efile 2012 A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Efile 2012   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. Efile 2012 Covered executive branch official. Efile 2012   For purposes of this discussion, a covered executive branch official is any of the following. Efile 2012 The President. Efile 2012 The Vice President. Efile 2012 Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. Efile 2012 Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). Efile 2012 Exceptions to denial of deduction. Efile 2012   The general denial of the deduction does not apply to the following. Efile 2012 Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. Efile 2012 An Indian tribal government is treated as a local council or similar governing body. Efile 2012 Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). Efile 2012 Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). Efile 2012 Moving machinery. Efile 2012   Generally, the cost of moving machinery from one city to another is a deductible expense. Efile 2012 So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Efile 2012 You can deduct the cost of installing the machinery in the new location. Efile 2012 However, you must capitalize the costs of installing or moving newly purchased machinery. Efile 2012 Outplacement services. Efile 2012   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. Efile 2012 are deductible. Efile 2012   The costs of outplacement services may cover more than one deduction category. Efile 2012 For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. Efile 2012   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Efile 2012 Penalties and fines. Efile 2012   Penalties paid for late performance or nonperformance of a contract are generally deductible. Efile 2012 For instance, you own and operate a construction company. Efile 2012 Under a contract, you are to finish construction of a building by a certain date. Efile 2012 Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Efile 2012 You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. Efile 2012 These additional costs are deductible business expenses. Efile 2012   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. Efile 2012 These fines or penalties include the following amounts. Efile 2012 Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Efile 2012 Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. Efile 2012 Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Efile 2012 Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Efile 2012   Examples of nondeductible penalties and fines include the following. Efile 2012 Fines for violating city housing codes. Efile 2012 Fines paid by truckers for violating state maximum highway weight laws. Efile 2012 Fines for violating air quality laws. Efile 2012 Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Efile 2012   A fine or penalty does not include any of the following. Efile 2012 Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. Efile 2012 Court costs or stenographic and printing charges. Efile 2012 Compensatory damages paid to a government. Efile 2012 Political contributions. Efile 2012   Contributions or gifts paid to political parties or candidates are not deductible. Efile 2012 In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Efile 2012 Indirect political contributions. Efile 2012   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Efile 2012 Examples of nondeductible expenses include the following. Efile 2012 Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Efile 2012 Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. Efile 2012 Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Efile 2012 Repairs. Efile 2012   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Efile 2012 Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. Efile 2012 Otherwise, the cost must be capitalized and depreciated. Efile 2012 See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Efile 2012   The cost of repairs includes the costs of labor, supplies, and certain other items. Efile 2012 The value of your own labor is not deductible. Efile 2012 Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). Efile 2012 Repayments. Efile 2012   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. Efile 2012 Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Efile 2012 Type of deduction. Efile 2012   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Efile 2012 For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. Efile 2012 If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Efile 2012   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. Efile 2012 However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. Efile 2012 Repayment—$3,000 or less. Efile 2012   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Efile 2012 Repayment—over $3,000. Efile 2012   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Efile 2012 However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. Efile 2012 ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Efile 2012 If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Efile 2012 Method 1. Efile 2012   Figure your tax for 2013 claiming a deduction for the repaid amount. Efile 2012 Method 2. Efile 2012   Figure your tax for 2013 claiming a credit for the repaid amount. Efile 2012 Follow these steps. Efile 2012 Figure your tax for 2013 without deducting the repaid amount. Efile 2012 Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Efile 2012 Subtract the tax in (2) from the tax shown on your return for the earlier year. Efile 2012 This is the amount of your credit. Efile 2012 Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Efile 2012   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Efile 2012   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Efile 2012 R. Efile 2012 C. Efile 2012 1341” next to line 71. Efile 2012 Example. Efile 2012 For 2012, you filed a return and reported your income on the cash method. Efile 2012 In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Efile 2012 Your filing status in 2013 and 2012 is single. Efile 2012 Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. Efile 2012 Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. Efile 2012 Repayment does not apply. Efile 2012   This discussion does not apply to the following. Efile 2012 Deductions for bad debts. Efile 2012 Deductions from sales to customers, such as returns and allowances, and similar items. Efile 2012 Deductions for legal and other expenses of contesting the repayment. Efile 2012 Year of deduction (or credit). Efile 2012   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. Efile 2012 If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. Efile 2012 For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. Efile 2012 Subscriptions. Efile 2012   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Efile 2012 Supplies and materials. Efile 2012   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. Efile 2012   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. Efile 2012 You do not keep a record of when they are used. Efile 2012 You do not take an inventory of the amount on hand at the beginning and end of the tax year. Efile 2012 This method does not distort your income. Efile 2012   You can also deduct the cost of books, professional instruments, equipment, etc. Efile 2012 , if you normally use them within a year. Efile 2012 However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. Efile 2012 For more information regarding depreciation see Publication 946, How To Depreciate Property. Efile 2012 Utilities. Efile 2012   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Efile 2012 However, any part due to personal use is not deductible. Efile 2012 Telephone. Efile 2012   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Efile 2012 However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Efile 2012 Prev  Up  Next   Home   More Online Publications
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Efile 2012 Publication 547(SP) - Additional Material Prev  Up  Next   Home   More Online Publications