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Federal Taxes 2012

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Federal Taxes 2012

Federal taxes 2012 33. Federal taxes 2012   Crédito para Ancianos o Personas Incapacitadas Table of Contents Introduction Useful Items - You may want to see: ¿Reúne los Requisitos del Crédito?Persona que Reúne los Requisitos Límites sobre los Ingresos Cómo Reclamar el CréditoEl Crédito Calculado por el IRS El Crédito Calculado por Usted Mismo Introduction Si reúne los requisitos, tal vez pueda reducir los impuestos que adeuda tomando el crédito para ancianos o personas incapacitadas, el cual se calcula en el Anexo R (Formulario 1040A o Formulario 1040). Federal taxes 2012 Este capítulo trata lo siguiente: Quién reúne los requisitos para reclamar el crédito para ancianos o personas incapacitadas. Federal taxes 2012 Cómo reclamar el crédito. Federal taxes 2012 Tal vez pueda tomar el crédito para ancianos o personas incapacitadas si: Tiene 65 años de edad o más al final del año 2013 o Se jubiló por incapacidad total y permanente y recibe ingresos por incapacidad sujetos a impuestos. Federal taxes 2012 Useful Items - You may want to see: Publicación 524 Credit for the Elderly or the Disabled (Crédito para ancianos o personas incapacitadas), en inglés 554 Tax Guide for Seniors (Guía tributaria para personas de la tercera edad), en inglés Formulario (e Instrucciones) Anexo R (Formulario 1040A o 1040) Credit for the Elderly or the Disabled (Crédito para ancianos o personas incapacitadas), en inglés ¿Reúne los Requisitos del Crédito? Puede reclamar el crédito para ancianos o personas incapacitadas si le corresponden ambas situaciones: Usted es una persona que reúne los requisitos. Federal taxes 2012 Sus ingresos no sobrepasan determinados límites. Federal taxes 2012 Puede utilizar la Figura 33-A y la Tabla 33-1 como guía para ver si tiene derecho al crédito. Federal taxes 2012 Primero, utilice la Figura 33-A para saber si reúne los requisitos. Federal taxes 2012 En tal caso, pase a la Tabla 33-1 para asegurarse que sus ingresos no superen los límites correspondientes al crédito. Federal taxes 2012 Puede reclamar el crédito sólo si presenta el Formulario 1040 o el Formulario 1040A. Federal taxes 2012 No puede reclamar el crédito si presenta el Formulario 1040EZ. Federal taxes 2012 Persona que Reúne los Requisitos Usted reúne los requisitos de este crédito si es ciudadano estadounidense o extranjero residente y cualquiera de las siguientes situaciones le corresponden: Tenía 65 años de edad o más al final del año 2013. Federal taxes 2012 Tenía menos de 65 años de edad al final del año 2013 y se cumplen las tres condiciones siguientes: Se jubiló por incapacidad total y permanente (se explica más adelante). Federal taxes 2012 Recibió ingresos sujetos a impuestos por incapacidad durante 2013. Federal taxes 2012 En el día 1 de enero de 2013, no había alcanzado la edad de jubilación obligatoria (se define más adelante bajo Ingresos por incapacidad ). Federal taxes 2012 65 años de edad. Federal taxes 2012   Se considera que tiene 65 años el día antes de cumplir los 65 años. Federal taxes 2012 Por lo tanto, si nació el 1 de enero de 1949, se considera que tiene 65 años de edad al final de 2013. Federal taxes 2012 Ciudadano o Extranjero Residente de los Estados Unidos Para reclamar el crédito, tiene que ser ciudadano o extranjero residente de los Estados Unidos (o ser tratado como extranjero residente). Federal taxes 2012 Normalmente, no puede reclamar el crédito si fue extranjero no residente en algún momento durante el año tributario. Federal taxes 2012 Excepciones. Federal taxes 2012   Tal vez pueda tomar el crédito si es extranjero no residente casado con un ciudadano o extranjero residente de los EE. Federal taxes 2012 UU. Federal taxes 2012 al final del año tributario, y usted y su cónyuge optan por tratarlo a usted como extranjero residente de los Estados Unidos. Federal taxes 2012 En tal caso, se gravan impuestos sobre los ingresos que usted y su cónyuge reciban de cualquier parte del mundo. Federal taxes 2012 Si era extranjero no residente al comenzar el año y residente extranjero al final del año, y estaba casado con un ciudadano o extranjero residente de los EE. Federal taxes 2012 UU. Federal taxes 2012 al final del año, tal vez pueda optar por ser considerado extranjero residente de los EE. Federal taxes 2012 UU. Federal taxes 2012 durante todo el año. Federal taxes 2012 En ese caso, quizás se le permita reclamar el crédito. Federal taxes 2012 Para más información sobre estas opciones, vea el capítulo 1 de la Publicación 519, U. Federal taxes 2012 S. Federal taxes 2012 Tax Guide for Aliens (Guía tributaria sobre los impuestos estadounidenses para extranjeros), en inglés. Federal taxes 2012 Personas Casadas Normalmente, si está casado al final del año tributario, usted y su cónyuge tienen que presentar una declaración conjunta para reclamar el crédito. Federal taxes 2012 No obstante, si usted y su cónyuge no vivieron en la misma vivienda en ningún momento durante el año tributario, pueden presentar una declaración conjunta o declaraciones separadas y aún reclamar el crédito. Federal taxes 2012 Cabeza de familia. Federal taxes 2012   Puede presentar la declaración como cabeza de familia y satisfacer las condiciones del crédito, aun si su cónyuge vivió con usted durante los primeros 6 meses del año, si cumple ciertos requisitos. Federal taxes 2012 Vea Cabeza de Familia en el capítulo 2, para averiguar qué requisitos tiene que cumplir. Federal taxes 2012 Personas Menores de 65 Años de Edad Si tiene menos de 65 años de edad al final del año 2013, puede reunir los requisitos del crédito sólo si está jubilado por incapacidad total y permanente (se explica a continuación) y ha recibido ingresos por incapacidad sujetos a impuestos (se explica más adelante, bajo el tema Ingresos por incapacidad ). Federal taxes 2012 Se le considera jubilado por incapacidad total y permanente si: Estaba total y permanentemente incapacitado cuando se jubiló y Se jubiló por incapacidad antes del cierre del año tributario. Federal taxes 2012 Aunque no se jubile oficialmente, puede que se le considere jubilado por incapacidad cuando haya dejado de trabajar debido a su incapacidad. Federal taxes 2012 Si se jubiló por incapacidad antes de 1977 y no estaba total y permanentemente incapacitado en ese momento, puede cumplir los requisitos del crédito si estaba total y permanentemente incapacitado el 1 de enero de 1976 o el 1 de enero de 1977. Federal taxes 2012 Total y permanentemente incapacitado. Federal taxes 2012    Está total y permanentemente incapacitado si no puede dedicarse a ninguna actividad sustancial remunerada a causa de una condición física o mental. Federal taxes 2012 Un médico calificado tiene que confirmar por escrito que dicha condición ha durado o puede durar 12 meses o más, o que dicha condición puede culminar en la muerte. Federal taxes 2012 Vea Declaración del médico , más adelante. Federal taxes 2012 Actividad sustancial remunerada. Federal taxes 2012   Se define “actividad sustancial remunerada” como el desempeño de deberes importantes a lo largo de un período de tiempo razonable, mientras uno trabaje para recibir remuneración u obtener ganancias; o un trabajo generalmente realizado a cambio de remuneración o ganancias. Federal taxes 2012 El mantener un empleo a tiempo completo (o un empleo a tiempo parcial a conveniencia de su empleador) en un ambiente laboral competitivo donde se paga por lo menos el salario mínimo se considera una prueba contundente de que puede dedicarse a una actividad sustancial remunerada. Federal taxes 2012   Los trabajos realizados para cuidarse a sí mismo o cuidar su vivienda no se consideran actividades sustanciales remuneradas. Federal taxes 2012 Tampoco se considera actividad sustancial remunerada: el trabajo no remunerado desempeñado en relación con los pasatiempos, la capacitación o terapia institucional, asistencia a una escuela, los clubes, programas sociales y otras actividades semejantes. Federal taxes 2012 No obstante, realizar este tipo de trabajo puede demostrar que usted es capaz de dedicarse a una actividad sustancial remunerada. Federal taxes 2012    El hecho de que no haya trabajado por algún tiempo no se considera una prueba concluyente de que no pueda dedicarse a una actividad sustancial remunerada. Federal taxes 2012 Empleo en establecimientos protegidos. Federal taxes 2012   Ciertos trabajos ofrecidos a personas con incapacidad física o mental en establecimientos que reúnen ciertos requisitos se consideran empleo protegido. Federal taxes 2012 Dichos sitios se ubican en establecimientos protegidos, tales como talleres, hospitales e instituciones parecidas, programas laborales o educativos en el hogar y asilos patrocinados por el Departamento de Asuntos de Veteranos (VA, por sus siglas en inglés). Federal taxes 2012   En comparación con el empleo comercial, la remuneración del empleo en establecimientos protegidos es más baja. Federal taxes 2012 Por lo tanto, una persona no suele buscar empleo en establecimientos protegidos si puede encontrar otro empleo. Federal taxes 2012 El hecho de que una persona haya aceptado un empleo en establecimientos protegidos no comprueba que la persona pueda dedicarse a una actividad sustancial remunerada. Federal taxes 2012 Declaración del médico. Federal taxes 2012   Si tiene menos de 65 años de edad, su médico tiene que certificar por escrito que usted estaba total y permanentemente incapacitado en la fecha en que se jubiló. Federal taxes 2012 Puede utilizar la declaración en las Instrucciones del Anexo R (Fomulario 1040A o 1040). Federal taxes 2012    Please click here for the text description of the image. Federal taxes 2012 Figura 33−A. Federal taxes 2012 ¿Es Usted una Persona que Reúne los Requisitos? Tabla 33-1. Federal taxes 2012 Límites sobre los Ingresos SI su estado civil para efectos de la declaración es . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 ENTONCES aun si reúne los requisitos (vea la Figura 33-A ), NO PUEDE reclamar el crédito si . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 Tiene ingresos brutos ajustados (AGI, por sus siglas en inglés)* iguales o superiores a . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 O el total de su Seguro Social no sujeto a impuestos además de otras pensiones, anualidades o ingreso por incapacidad no sujetos a impuestos es igual o superior a . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 . Federal taxes 2012 soltero, cabeza de familia o viudo que reúne los requisitos con hijo dependiente $17,500 $5,000 casado que presenta una declaración conjunta y sólo uno de los cónyuges reúne los requisitos de la Figura 33-A $20,000 $5,000 casado que presenta una declaración conjunta y ambos cónyuges reúnen los requisitos de la Figura 33-A $25,000 $7,500 casado que presenta una declaración por separado y usted y su cónyuge no vivieron en la misma vivienda en ningún momento del año 2013 $12,500 $3,750 *El AGI es la cantidad indicada en la línea 22 del Formulario 1040A o la línea 38 del Formulario 1040. Federal taxes 2012   No tiene que presentar esta declaración escrita junto con el Formulario 1040 o Formulario 1040A, pero tiene que guardarla con su documentación. Federal taxes 2012 Veteranos. Federal taxes 2012   Si el Departamento de Asuntos de Veteranos (VA, por sus siglas en inglés) certifica que está total y permanentemente incapacitado, puede utilizar el Formulario 21-0172 del VA, Certification of Permanent and Total Disability (Certificación de incapacidad total y permanente), en inglés, en lugar de la declaración escrita de un médico que usted está obligado a conservar. Federal taxes 2012 El Formulario 21-0172 del VA tiene que ser firmado por una persona autorizada por el VA. Federal taxes 2012 Puede obtener este formulario de la oficina regional del VA de su área. Federal taxes 2012 Declaración escrita de un médico obtenida en un año anterior. Federal taxes 2012   Si obtuvo una declaración escrita de su médico en un año anterior y, por su condición continua de incapacidad, no pudo dedicarse a ninguna actividad sustancial remunerada durante 2013, quizás no necesite obtener otra declaración escrita de su médico para 2013. Federal taxes 2012 Para leer una explicación detallada de las condiciones que tiene que cumplir, consulte la Parte II de las Instrucciones del Anexo R (Formulario 1040A o 1040). Federal taxes 2012 Si satisface las condiciones obligatorias, marque el recuadro 2 de la Parte II del Anexo R (Formulario 1040A o 1040). Federal taxes 2012   Si marcó el recuadro 4, 5 ó 6 de la Parte I del Anexo R (Formulario 1040A o 1040), anote en el espacio por encima del recuadro de la línea 2 de la Parte II el (los) primer(os) nombre(s) del (de los) cónyuge(s) para el (los) cual(es) está marcado dicho recuadro. Federal taxes 2012 Ingresos por incapacidad. Federal taxes 2012   Si tiene menos de 65 años de edad, tiene que tener también ingresos tributables de compensación por incapacidad para reunir los requisitos del crédito. Federal taxes 2012 Los ingresos de compensación por incapacidad tienen que cumplir los siguientes requisitos: Se tienen que pagar conforme al seguro de accidente o médico, o el plan de pensiones de su empleador. Federal taxes 2012 Se tienen que incluir en los ingresos como salario (o pagos en lugar de salario) durante el tiempo por el cual se ausentó del trabajo a raíz de una incapacidad total y permanente. Federal taxes 2012 Pagos que no se consideran ingresos por incapacidad. Federal taxes 2012   Todo pago que reciba de un plan que no ofrece una opción para la jubilación por incapacidad no se considera ingreso por incapacidad. Federal taxes 2012 Todo pago global que reciba por vacaciones acumuladas al jubilarse por incapacidad se considera pago de salario en vez de ingreso por incapacidad. Federal taxes 2012   Para propósitos del crédito para ancianos o personas incapacitadas, los ingresos por incapacidad no incluyen cantidades que usted reciba después de cumplir la edad obligatoria de jubilación. Federal taxes 2012 La edad obligatoria de jubilación es la edad establecida por su empleador en la que usted habría estado obligado a jubilarse si no se hubiera quedado incapacitado. Federal taxes 2012 Límites sobre los Ingresos Para determinar si puede reclamar el crédito, tiene que tener en cuenta dos límites sobre los ingresos. Federal taxes 2012 El primer límite es la cantidad de ingresos brutos ajustados (AGI, por sus siglas en inglés). Federal taxes 2012 El segundo límite es la cantidad de Seguro Social no sujeta a impuestos y otras pensiones, anualidades o compensación por incapacidad no sujetas a impuestos que haya recibido. Federal taxes 2012 Se indican los límites en la Tabla 33-1. Federal taxes 2012 Si tiene ingresos brutos ajustados y pensiones, anualidades o compensación por incapacidad no sujetos a impuestos inferiores a los límites de ingresos, quizás pueda reclamar el crédito. Federal taxes 2012 Vea Cómo Reclamar el Crédito , más adelante. Federal taxes 2012 Si tiene ingresos brutos ajustados o pensiones, anualidades o compensación por incapacidad no sujetos a impuestos iguales o superiores a los límites de ingresos, no puede reclamar el crédito. Federal taxes 2012 Cómo Reclamar el Crédito Puede calcular el crédito usted mismo o el Servicio de Impuestos Internos (IRS, por sus siglas en inglés) se lo calculará. Federal taxes 2012 El Crédito Calculado por el IRS Si opta por que el IRS le calcule el crédito, lea el tema presentado a continuación relacionado con el formulario que usted va a presentar (el Formulario 1040 o el Formulario 1040A). Federal taxes 2012 Si desea que el IRS le calcule su impuesto, vea el capítulo 30 . Federal taxes 2012 Formulario 1040. Federal taxes 2012   Si desea que el IRS le calcule el crédito, vea Datos a Incluir en el Formulario 1040 bajo Impuestos Calculados por el IRS en el capítulo 30. Federal taxes 2012 Formulario 1040A. Federal taxes 2012   Si desea que el IRS le calcule el crédito, vea Datos a Incluir en el Formulario 1040A bajo Impuestos Calculados por el IRS en el capítulo 30. Federal taxes 2012 El Crédito Calculado por Usted Mismo Si opta por calcular el crédito usted mismo, llene la primera página del Anexo R (Formulario 1040A o 1040). Federal taxes 2012 Luego, llene la Parte III del Anexo R (Formulario 1040A o 1040). Federal taxes 2012 Si presenta el Formulario 1040A, anote en la línea 30 de este formulario la cantidad proveniente de la línea 22 del Anexo R (Formulario 1040A o 1040). Federal taxes 2012 Si presenta el Formulario 1040, anote en la línea 53 de este formulario la cantidad proveniente de la línea 22 del Anexo R (Formulario 1040A o 1040), marque el recuadro c y escriba “Sch R” en la línea al lado de dicho recuadro. Federal taxes 2012 Para leer una explicación detallada sobre cómo llenar la Parte III del Anexo R, vea Figuring the Credit Yourself (Cómo calcular el crédito usted mismo), en la Publicación 524, en inglés. Federal taxes 2012 Límite del crédito. Federal taxes 2012   La cantidad del crédito que puede reclamar, por lo general, suele limitarse a la cantidad de impuestos que tiene que pagar. Federal taxes 2012 Utilice la Credit Limit Worksheet (Hoja de trabajo para calcular el límite del crédito), en las Instrucciones del Anexo R (Formulario 1040A o Formulario 1040) para determinar si su crédito es limitado. Federal taxes 2012 Prev  Up  Next   Home   More Online Publications
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The Federal Taxes 2012

Federal taxes 2012 1. Federal taxes 2012   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Federal taxes 2012 At-risk limits. Federal taxes 2012 Passive activities. Federal taxes 2012 Net operating loss. Federal taxes 2012 When Can I Deduct an Expense?Economic performance. Federal taxes 2012 Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Federal taxes 2012  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Federal taxes 2012 See Optional safe harbor method under Business use of your home , later. Federal taxes 2012 Introduction This chapter covers the general rules for deducting business expenses. Federal taxes 2012 Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Federal taxes 2012 Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Federal taxes 2012 What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Federal taxes 2012 An ordinary expense is one that is common and accepted in your industry. Federal taxes 2012 A necessary expense is one that is helpful and appropriate for your trade or business. Federal taxes 2012 An expense does not have to be indispensable to be considered necessary. Federal taxes 2012 Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Federal taxes 2012 In some cases you may not be allowed to deduct the expense at all. Federal taxes 2012 Therefore, it is important to distinguish usual business expenses from expenses that include the following. Federal taxes 2012 The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Federal taxes 2012 Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Federal taxes 2012 Some of your business expenses may be included in figuring cost of goods sold. Federal taxes 2012 Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Federal taxes 2012 If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Federal taxes 2012 The following are types of expenses that go into figuring cost of goods sold. Federal taxes 2012 The cost of products or raw materials, including freight. Federal taxes 2012 Storage. Federal taxes 2012 Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Federal taxes 2012 Factory overhead. Federal taxes 2012 Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Federal taxes 2012 Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Federal taxes 2012 This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Federal taxes 2012 For more information, see the following sources. Federal taxes 2012 Cost of goods sold—chapter 6 of Publication 334. Federal taxes 2012 Inventories—Publication 538. Federal taxes 2012 Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Federal taxes 2012 Capital Expenses You must capitalize, rather than deduct, some costs. Federal taxes 2012 These costs are a part of your investment in your business and are called “capital expenses. Federal taxes 2012 ” Capital expenses are considered assets in your business. Federal taxes 2012 In general, you capitalize three types of costs. Federal taxes 2012 Business start-up costs (See Tip below). Federal taxes 2012 Business assets. Federal taxes 2012 Improvements. Federal taxes 2012 You can elect to deduct or amortize certain business start-up costs. Federal taxes 2012 See chapters 7 and 8. Federal taxes 2012 Cost recovery. Federal taxes 2012   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Federal taxes 2012 These recovery methods allow you to deduct part of your cost each year. Federal taxes 2012 In this way, you are able to recover your capital expense. Federal taxes 2012 See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Federal taxes 2012 A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Federal taxes 2012 A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Federal taxes 2012 See Publication 946 for details. Federal taxes 2012 Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Federal taxes 2012 These costs may include expenses for advertising, travel, or wages for training employees. Federal taxes 2012 If you go into business. Federal taxes 2012   When you go into business, treat all costs you had to get your business started as capital expenses. Federal taxes 2012   Usually you recover costs for a particular asset through depreciation. Federal taxes 2012 Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Federal taxes 2012 However, you can choose to amortize certain costs for setting up your business. Federal taxes 2012 See Starting a Business in chapter 8 for more information on business start-up costs. Federal taxes 2012 If your attempt to go into business is unsuccessful. Federal taxes 2012   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Federal taxes 2012 The costs you had before making a decision to acquire or begin a specific business. Federal taxes 2012 These costs are personal and nondeductible. Federal taxes 2012 They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Federal taxes 2012 The costs you had in your attempt to acquire or begin a specific business. Federal taxes 2012 These costs are capital expenses and you can deduct them as a capital loss. Federal taxes 2012   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Federal taxes 2012   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Federal taxes 2012 You cannot take a deduction for these costs. Federal taxes 2012 You will recover the costs of these assets when you dispose of them. Federal taxes 2012 Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Federal taxes 2012 You must fully capitalize the cost of these assets, including freight and installation charges. Federal taxes 2012 Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Federal taxes 2012 See Regulations section 1. Federal taxes 2012 263A-2 for information on these rules. Federal taxes 2012 Improvements Improvements are generally major expenditures. Federal taxes 2012 Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Federal taxes 2012 The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Federal taxes 2012 Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Federal taxes 2012 Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Federal taxes 2012 However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Federal taxes 2012 Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Federal taxes 2012 Restoration plan. Federal taxes 2012   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Federal taxes 2012 This applies even if some of the work would by itself be classified as repairs. Federal taxes 2012 Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Federal taxes 2012 Motor vehicles. Federal taxes 2012   You usually capitalize the cost of a motor vehicle you use in your business. Federal taxes 2012 You can recover its cost through annual deductions for depreciation. Federal taxes 2012   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Federal taxes 2012 See Publication 463. Federal taxes 2012   Generally, repairs you make to your business vehicle are currently deductible. Federal taxes 2012 However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Federal taxes 2012 Roads and driveways. Federal taxes 2012    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Federal taxes 2012 The cost of maintaining a private road on your business property is a deductible expense. Federal taxes 2012 Tools. Federal taxes 2012   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Federal taxes 2012 Machinery parts. Federal taxes 2012   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Federal taxes 2012 Heating equipment. Federal taxes 2012   The cost of changing from one heating system to another is a capital expense. Federal taxes 2012 Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Federal taxes 2012 However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Federal taxes 2012 You can deduct the business part. Federal taxes 2012 For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Federal taxes 2012 The remaining 30% is personal interest and generally is not deductible. Federal taxes 2012 See chapter 4 for information on deducting interest and the allocation rules. Federal taxes 2012 Business use of your home. Federal taxes 2012   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Federal taxes 2012 These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Federal taxes 2012   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Federal taxes 2012 The business part of your home must be used exclusively and regularly for your trade or business. Federal taxes 2012 The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Federal taxes 2012   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Federal taxes 2012   Your home office qualifies as your principal place of business if you meet the following requirements. Federal taxes 2012 You use the office exclusively and regularly for administrative or management activities of your trade or business. Federal taxes 2012 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Federal taxes 2012   If you have more than one business location, determine your principal place of business based on the following factors. Federal taxes 2012 The relative importance of the activities performed at each location. Federal taxes 2012 If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Federal taxes 2012 Optional safe harbor method. Federal taxes 2012   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Federal taxes 2012 This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Federal taxes 2012   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Federal taxes 2012 Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Federal taxes 2012 You are not required to allocate these deductions between personal and business use, as is required under the regular method. Federal taxes 2012 If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Federal taxes 2012   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Federal taxes 2012 All of the requirements discussed earlier under Business use of your home still apply. Federal taxes 2012   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Federal taxes 2012    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Federal taxes 2012 Business use of your car. Federal taxes 2012   If you use your car exclusively in your business, you can deduct car expenses. Federal taxes 2012 If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Federal taxes 2012 Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Federal taxes 2012   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Federal taxes 2012 Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Federal taxes 2012 Beginning in 2013, the standard mileage rate is 56. Federal taxes 2012 5 cents per mile. Federal taxes 2012   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Federal taxes 2012   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Federal taxes 2012 How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Federal taxes 2012 Recovery of amount deducted (tax benefit rule). Federal taxes 2012   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Federal taxes 2012 If you have a recovery in a later year, include the recovered amount in income in that year. Federal taxes 2012 However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Federal taxes 2012   For more information on recoveries and the tax benefit rule, see Publication 525. Federal taxes 2012 Payments in kind. Federal taxes 2012   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Federal taxes 2012 You cannot deduct the cost of your own labor. Federal taxes 2012   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Federal taxes 2012 If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Federal taxes 2012 Limits on losses. Federal taxes 2012   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Federal taxes 2012 There may be limits on how much of the loss you can deduct. Federal taxes 2012 Not-for-profit limits. Federal taxes 2012   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Federal taxes 2012 See Not-for-Profit Activities , later. Federal taxes 2012 At-risk limits. Federal taxes 2012   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Federal taxes 2012 You are at risk in any activity for the following. Federal taxes 2012 The money and adjusted basis of property you contribute to the activity. Federal taxes 2012 Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Federal taxes 2012 For more information, see Publication 925. Federal taxes 2012 Passive activities. Federal taxes 2012   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Federal taxes 2012 In general, deductions for losses from passive activities only offset income from passive activities. Federal taxes 2012 You cannot use any excess deductions to offset other income. Federal taxes 2012 In addition, passive activity credits can only offset the tax on net passive income. Federal taxes 2012 Any excess loss or credits are carried over to later years. Federal taxes 2012 Suspended passive losses are fully deductible in the year you completely dispose of the activity. Federal taxes 2012 For more information, see Publication 925. Federal taxes 2012 Net operating loss. Federal taxes 2012   If your deductions are more than your income for the year, you may have a “net operating loss. Federal taxes 2012 ” You can use a net operating loss to lower your taxes in other years. Federal taxes 2012 See Publication 536 for more information. Federal taxes 2012   See Publication 542 for information about net operating losses of corporations. Federal taxes 2012 When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Federal taxes 2012 An accounting method is a set of rules used to determine when and how income and expenses are reported. Federal taxes 2012 The two basic methods are the cash method and the accrual method. Federal taxes 2012 Whichever method you choose must clearly reflect income. Federal taxes 2012 For more information on accounting methods, see Publication 538. Federal taxes 2012 Cash method. Federal taxes 2012   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Federal taxes 2012 Accrual method. Federal taxes 2012   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Federal taxes 2012 The all-events test has been met. Federal taxes 2012 The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Federal taxes 2012 Economic performance has occurred. Federal taxes 2012 Economic performance. Federal taxes 2012   You generally cannot deduct or capitalize a business expense until economic performance occurs. Federal taxes 2012 If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Federal taxes 2012 If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Federal taxes 2012 Example. Federal taxes 2012 Your tax year is the calendar year. Federal taxes 2012 In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Federal taxes 2012 You paid it by check in January 2014. Federal taxes 2012 If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Federal taxes 2012 If you use the cash method of accounting, deduct the expense on your 2014 return. Federal taxes 2012 Prepayment. Federal taxes 2012   You generally cannot deduct expenses in advance, even if you pay them in advance. Federal taxes 2012 This rule applies to both the cash and accrual methods. Federal taxes 2012 It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Federal taxes 2012 Example. Federal taxes 2012 In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Federal taxes 2012 Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Federal taxes 2012 You can deduct the rent for 2014 and 2015 on your tax returns for those years. Federal taxes 2012 Contested liability. Federal taxes 2012   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Federal taxes 2012 Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Federal taxes 2012 S. Federal taxes 2012 possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Federal taxes 2012 However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Federal taxes 2012 See Regulations section 1. Federal taxes 2012 461-2. Federal taxes 2012 Related person. Federal taxes 2012   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Federal taxes 2012 However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Federal taxes 2012 Your deduction is allowed when the amount is includible in income by the related cash method payee. Federal taxes 2012 See Related Persons in Publication 538. Federal taxes 2012 Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Federal taxes 2012 Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Federal taxes 2012 The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Federal taxes 2012 It does not apply to corporations other than S corporations. Federal taxes 2012 In determining whether you are carrying on an activity for profit, several factors are taken into account. Federal taxes 2012 No one factor alone is decisive. Federal taxes 2012 Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Federal taxes 2012 Presumption of profit. Federal taxes 2012   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Federal taxes 2012 Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Federal taxes 2012 The activity must be substantially the same for each year within this period. Federal taxes 2012 You have a profit when the gross income from an activity exceeds the deductions. Federal taxes 2012   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Federal taxes 2012   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Federal taxes 2012 This means the limits discussed here will not apply. Federal taxes 2012 You can take all your business deductions from the activity, even for the years that you have a loss. Federal taxes 2012 You can rely on this presumption unless the IRS later shows it to be invalid. Federal taxes 2012 Using the presumption later. Federal taxes 2012   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Federal taxes 2012   You can elect to do this by filing Form 5213. Federal taxes 2012 Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Federal taxes 2012   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Federal taxes 2012 Accordingly, it will not restrict your deductions. Federal taxes 2012 Rather, you will gain time to earn a profit in the required number of years. Federal taxes 2012 If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Federal taxes 2012 If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Federal taxes 2012   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Federal taxes 2012 The period is extended only for deductions of the activity and any related deductions that might be affected. Federal taxes 2012    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Federal taxes 2012 Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Federal taxes 2012 Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Federal taxes 2012 You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Federal taxes 2012 However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Federal taxes 2012 Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Federal taxes 2012 If you are an individual, these deductions may be taken only if you itemize. Federal taxes 2012 These deductions may be taken on Schedule A (Form 1040). Federal taxes 2012 Category 1. Federal taxes 2012   Deductions you can take for personal as well as for business activities are allowed in full. Federal taxes 2012 For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Federal taxes 2012 Deduct them on the appropriate lines of Schedule A (Form 1040). Federal taxes 2012 For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Federal taxes 2012 The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Federal taxes 2012 The reduction amount returns to $100 for tax years beginning after December 31, 2009. Federal taxes 2012 See Publication 547 for more information on casualty losses. Federal taxes 2012 For the limits that apply to home mortgage interest, see Publication 936. Federal taxes 2012 Category 2. Federal taxes 2012   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Federal taxes 2012 Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Federal taxes 2012 Category 3. Federal taxes 2012   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Federal taxes 2012 Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Federal taxes 2012 Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Federal taxes 2012    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Federal taxes 2012 They are subject to the 2%-of-adjusted-gross-income limit. Federal taxes 2012 See Publication 529 for information on this limit. Federal taxes 2012 Example. Federal taxes 2012 Adriana is engaged in a not-for-profit activity. Federal taxes 2012 The income and expenses of the activity are as follows. Federal taxes 2012 Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Federal taxes 2012 The limit is reached in category (3), as follows. Federal taxes 2012 Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Federal taxes 2012 $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Federal taxes 2012 Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Federal taxes 2012 The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Federal taxes 2012 Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Federal taxes 2012 Partnerships and S corporations. Federal taxes 2012   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Federal taxes 2012 They are reflected in the individual shareholder's or partner's distributive shares. Federal taxes 2012 More than one activity. Federal taxes 2012   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Federal taxes 2012 The following are the most significant facts and circumstances in making this determination. Federal taxes 2012 The degree of organizational and economic interrelationship of various undertakings. Federal taxes 2012 The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Federal taxes 2012 The similarity of the undertakings. Federal taxes 2012   The IRS will generally accept your characterization if it is supported by facts and circumstances. Federal taxes 2012    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Federal taxes 2012 Figure separately whether each is a not-for-profit activity. Federal taxes 2012 Then figure the limit on deductions and losses separately for each activity that is not for profit. Federal taxes 2012 Prev  Up  Next   Home   More Online Publications