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Form 1040x More:label_form_201040x More:taxes

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Form 1040x More:label_form_201040x More:taxes

Form 1040x more:label_form_201040x more:taxes 6. Form 1040x more:label_form_201040x more:taxes   How To Report Table of Contents Where To ReportGifts. Form 1040x more:label_form_201040x more:taxes Statutory employees. Form 1040x more:label_form_201040x more:taxes Vehicle Provided by Your Employer ReimbursementsAccountable Plans Nonaccountable Plans Rules for Independent Contractors and Clients How To Use Per Diem Rate TablesThe Two Substantiation Methods Transition Rules Completing Forms 2106 and 2106-EZInformation on use of cars. Form 1040x more:label_form_201040x more:taxes Standard mileage rate. Form 1040x more:label_form_201040x more:taxes Actual expenses. Form 1040x more:label_form_201040x more:taxes Car rentals. Form 1040x more:label_form_201040x more:taxes Hours of service limits. Form 1040x more:label_form_201040x more:taxes Allocating your reimbursement. Form 1040x more:label_form_201040x more:taxes 1. Form 1040x more:label_form_201040x more:taxes Limit on meals and entertainment. Form 1040x more:label_form_201040x more:taxes 2. Form 1040x more:label_form_201040x more:taxes Limit on miscellaneous itemized deductions. Form 1040x more:label_form_201040x more:taxes 3. Form 1040x more:label_form_201040x more:taxes Limit on total itemized deductions. Form 1040x more:label_form_201040x more:taxes Special Rules This chapter explains where and how to report the expenses discussed in this publication. Form 1040x more:label_form_201040x more:taxes It discusses reimbursements and how to treat them under accountable and nonaccountable plans. Form 1040x more:label_form_201040x more:taxes It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. Form 1040x more:label_form_201040x more:taxes The chapter ends with illustrations of how to report travel, entertainment, gift, and car expenses on Forms 2106 and 2106-EZ. Form 1040x more:label_form_201040x more:taxes Where To Report This section provides general information on where to report the expenses discussed in this publication. Form 1040x more:label_form_201040x more:taxes Self-employed. Form 1040x more:label_form_201040x more:taxes   You must report your income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. Form 1040x more:label_form_201040x more:taxes You do not use Form 2106 or 2106-EZ. Form 1040x more:label_form_201040x more:taxes    If you claim car or truck expenses, you must provide certain information on the use of your vehicle. Form 1040x more:label_form_201040x more:taxes You provide this information on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Form 4562. Form 1040x more:label_form_201040x more:taxes   If you file Schedule C (Form 1040): Report your travel expenses, except meals, on line 24a, Report your deductible meals (actual cost or standard meal allowance) and entertainment on line 24b, Report your gift expenses and transportation expenses, other than car expenses, on line 27a, and Report your car expenses on line 9. Form 1040x more:label_form_201040x more:taxes Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization. Form 1040x more:label_form_201040x more:taxes   If you file Schedule C-EZ (Form 1040), report the total of all business expenses on line 2. Form 1040x more:label_form_201040x more:taxes You can only include 50% of your meals and entertainment in that total. Form 1040x more:label_form_201040x more:taxes If you include car expenses, you must also complete Part III of the form. Form 1040x more:label_form_201040x more:taxes    If you file Schedule F (Form 1040): Report your car expenses on line 10. Form 1040x more:label_form_201040x more:taxes Attach Form 4562 and provide information on the use of your car in Part V of Form 4562. Form 1040x more:label_form_201040x more:taxes Report all other business expenses discussed in this publication on line 32. Form 1040x more:label_form_201040x more:taxes You can only include 50% of your meals and entertainment on that line. Form 1040x more:label_form_201040x more:taxes See your form instructions for more information on how to complete your tax return. Form 1040x more:label_form_201040x more:taxes Both self-employed and an employee. Form 1040x more:label_form_201040x more:taxes   If you are both self-employed and an employee, you must keep separate records for each business activity. Form 1040x more:label_form_201040x more:taxes Report your business expenses for self-employment on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040), as discussed earlier. Form 1040x more:label_form_201040x more:taxes Report your business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed next. Form 1040x more:label_form_201040x more:taxes Employees. Form 1040x more:label_form_201040x more:taxes    If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. Form 1040x more:label_form_201040x more:taxes However, you can use the shorter Form 2106-EZ instead of Form 2106 if you meet all of the following conditions. Form 1040x more:label_form_201040x more:taxes You are an employee deducting expenses attributable to your job. Form 1040x more:label_form_201040x more:taxes You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Form 1040x more:label_form_201040x more:taxes If you claim car expenses, you use the standard mileage rate. Form 1040x more:label_form_201040x more:taxes   For more information on how to report your expenses on Forms 2106 and 2106-EZ, see Completing Forms 2106 and 2106-EZ , later. Form 1040x more:label_form_201040x more:taxes Gifts. Form 1040x more:label_form_201040x more:taxes   If you did not receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Form 1040x more:label_form_201040x more:taxes Instead, claim the amount of your deductible gifts directly on line 21 of Schedule A (Form 1040). Form 1040x more:label_form_201040x more:taxes Statutory employees. Form 1040x more:label_form_201040x more:taxes    If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Form 1040x more:label_form_201040x more:taxes Do not complete Form 2106 or 2106-EZ. Form 1040x more:label_form_201040x more:taxes   Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers. Form 1040x more:label_form_201040x more:taxes If you are entitled to a reimbursement from your employer but you do not claim it, you cannot claim a deduction for the expenses to which that unclaimed reimbursement applies. Form 1040x more:label_form_201040x more:taxes Reimbursement for personal expenses. Form 1040x more:label_form_201040x more:taxes    If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. Form 1040x more:label_form_201040x more:taxes You cannot deduct personal expenses. Form 1040x more:label_form_201040x more:taxes Income-producing property. Form 1040x more:label_form_201040x more:taxes   If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity. Form 1040x more:label_form_201040x more:taxes   For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. Form 1040x more:label_form_201040x more:taxes See Publication 527, Residential Rental Property, for more information on the rental of real estate. Form 1040x more:label_form_201040x more:taxes If you have deductible investment-related transportation expenses, report them on Schedule A (Form 1040), line 23. Form 1040x more:label_form_201040x more:taxes Vehicle Provided by Your Employer If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. Form 1040x more:label_form_201040x more:taxes The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. Form 1040x more:label_form_201040x more:taxes You cannot use the standard mileage rate. Form 1040x more:label_form_201040x more:taxes Value reported on Form W-2. Form 1040x more:label_form_201040x more:taxes   Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Form 1040x more:label_form_201040x more:taxes Your employer must separately state the amount if 100% of the annual lease value was included in your income. Form 1040x more:label_form_201040x more:taxes If you are unsure of the amount included on your Form W-2, ask your employer. Form 1040x more:label_form_201040x more:taxes Full value included in your income. Form 1040x more:label_form_201040x more:taxes   You can deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. Form 1040x more:label_form_201040x more:taxes On your 2013 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation, and box 14. Form 1040x more:label_form_201040x more:taxes    To claim your expenses, complete Form 2106, Part II, Sections A and C. Form 1040x more:label_form_201040x more:taxes Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Form 1040x more:label_form_201040x more:taxes Complete the rest of the form. Form 1040x more:label_form_201040x more:taxes Less than full value included in your income. Form 1040x more:label_form_201040x more:taxes   If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Form 1040x more:label_form_201040x more:taxes Do not enter this value on your Form 2106 because it is not deductible. Form 1040x more:label_form_201040x more:taxes   If you paid any actual costs (that your employer did not provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Form 1040x more:label_form_201040x more:taxes Examples of costs that you may have are gas, oil, and repairs. Form 1040x more:label_form_201040x more:taxes Complete Form 2106, Part II, Sections A and C. Form 1040x more:label_form_201040x more:taxes Enter your actual costs on line 23 of Section C and leave line 25 blank. Form 1040x more:label_form_201040x more:taxes Complete the rest of the form. Form 1040x more:label_form_201040x more:taxes Reimbursements This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication. Form 1040x more:label_form_201040x more:taxes If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. Form 1040x more:label_form_201040x more:taxes It also covers rules for independent contractors. Form 1040x more:label_form_201040x more:taxes No reimbursement. Form 1040x more:label_form_201040x more:taxes   You are not reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. Form 1040x more:label_form_201040x more:taxes In this situation, you have no reimbursement or allowance arrangement, and you do not have to read this section on reimbursements. Form 1040x more:label_form_201040x more:taxes Instead, see Completing Forms 2106 and 2106-EZ , later, for information on completing your tax return. Form 1040x more:label_form_201040x more:taxes Reimbursement, allowance, or advance. Form 1040x more:label_form_201040x more:taxes   A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Form 1040x more:label_form_201040x more:taxes Arrangements include per diem and car allowances. Form 1040x more:label_form_201040x more:taxes    A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. Form 1040x more:label_form_201040x more:taxes (The term “ incidental expenses ” is defined in chapter 1 under Standard Meal Allowance. Form 1040x more:label_form_201040x more:taxes ) A car allowance is an amount your employer gives you for the business use of your car. Form 1040x more:label_form_201040x more:taxes   Your employer should tell you what method of reimbursement is used and what records you must provide. Form 1040x more:label_form_201040x more:taxes Employers. Form 1040x more:label_form_201040x more:taxes   If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Form 1040x more:label_form_201040x more:taxes Reimbursements treated as paid under an accountable plan, as explained next, are not reported as pay. Form 1040x more:label_form_201040x more:taxes Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. Form 1040x more:label_form_201040x more:taxes See Publication 15 (Circular E), Employer's Tax Guide, for information on employee pay. Form 1040x more:label_form_201040x more:taxes Accountable Plans To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules: Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Form 1040x more:label_form_201040x more:taxes You must adequately account to your employer for these expenses within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes You must return any excess reimbursement or allowance within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes “ Adequate accounting ” and “ returning excess reimbursements ” are discussed later. Form 1040x more:label_form_201040x more:taxes An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Form 1040x more:label_form_201040x more:taxes Reasonable period of time. Form 1040x more:label_form_201040x more:taxes   The definition of reasonable period of time depends on the facts and circumstances of your situation. Form 1040x more:label_form_201040x more:taxes However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes You receive an advance within 30 days of the time you have an expense. Form 1040x more:label_form_201040x more:taxes You adequately account for your expenses within 60 days after they were paid or incurred. Form 1040x more:label_form_201040x more:taxes You return any excess reimbursement within 120 days after the expense was paid or incurred. Form 1040x more:label_form_201040x more:taxes You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Form 1040x more:label_form_201040x more:taxes Employee meets accountable plan rules. Form 1040x more:label_form_201040x more:taxes   If you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. Form 1040x more:label_form_201040x more:taxes If your expenses equal your reimbursements, you do not complete Form 2106. Form 1040x more:label_form_201040x more:taxes You have no deduction since your expenses and reimbursement are equal. Form 1040x more:label_form_201040x more:taxes    If your employer included reimbursements in box 1 of your Form W-2 and you meet all the rules for accountable plans, ask your employer for a corrected Form W-2. Form 1040x more:label_form_201040x more:taxes Accountable plan rules not met. Form 1040x more:label_form_201040x more:taxes   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. Form 1040x more:label_form_201040x more:taxes All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later). Form 1040x more:label_form_201040x more:taxes Failure to return excess reimbursements. Form 1040x more:label_form_201040x more:taxes   If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes See Reasonable period of time , earlier, and Returning Excess Reimbursements , later. Form 1040x more:label_form_201040x more:taxes Reimbursement of nondeductible expenses. Form 1040x more:label_form_201040x more:taxes   You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. Form 1040x more:label_form_201040x more:taxes The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes Example. Form 1040x more:label_form_201040x more:taxes Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you are not away from home. Form 1040x more:label_form_201040x more:taxes The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer. Form 1040x more:label_form_201040x more:taxes Adequate Accounting One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. Form 1040x more:label_form_201040x more:taxes You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. Form 1040x more:label_form_201040x more:taxes (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses. Form 1040x more:label_form_201040x more:taxes ) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. Form 1040x more:label_form_201040x more:taxes See Per Diem and Car Allowances , later. Form 1040x more:label_form_201040x more:taxes You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. Form 1040x more:label_form_201040x more:taxes This includes amounts you charged to your employer by credit card or other method. Form 1040x more:label_form_201040x more:taxes You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. Form 1040x more:label_form_201040x more:taxes You must pay back the amount of any reimbursement or other expense allowance for which you do not adequately account or that is more than the amount for which you accounted. Form 1040x more:label_form_201040x more:taxes Per Diem and Car Allowances If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. Form 1040x more:label_form_201040x more:taxes A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply. Form 1040x more:label_form_201040x more:taxes Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business. Form 1040x more:label_form_201040x more:taxes The allowance is similar in form to and not more than the federal rate (defined later). Form 1040x more:label_form_201040x more:taxes You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes You are not related to your employer (as defined next). Form 1040x more:label_form_201040x more:taxes If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement. Form 1040x more:label_form_201040x more:taxes If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. Form 1040x more:label_form_201040x more:taxes In this case, you must be able to prove your expenses to the IRS. Form 1040x more:label_form_201040x more:taxes Related to employer. Form 1040x more:label_form_201040x more:taxes   You are related to your employer if: Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant, Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer. Form 1040x more:label_form_201040x more:taxes You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock. Form 1040x more:label_form_201040x more:taxes The federal rate. Form 1040x more:label_form_201040x more:taxes   The federal rate can be figured using any one of the following methods. Form 1040x more:label_form_201040x more:taxes For per diem amounts: The regular federal per diem rate. Form 1040x more:label_form_201040x more:taxes The standard meal allowance. Form 1040x more:label_form_201040x more:taxes The high-low rate. Form 1040x more:label_form_201040x more:taxes For car expenses: The standard mileage rate. Form 1040x more:label_form_201040x more:taxes A fixed and variable rate (FAVR). Form 1040x more:label_form_201040x more:taxes    For per diem amounts, use the rate in effect for the area where you stop for sleep or rest. Form 1040x more:label_form_201040x more:taxes Regular federal per diem rate. Form 1040x more:label_form_201040x more:taxes   The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meals, and incidental expenses (or meals and incidental expenses only) while they are traveling away from home in a particular area. Form 1040x more:label_form_201040x more:taxes The rates are different for different locations. Form 1040x more:label_form_201040x more:taxes Your employer should have these rates available. Form 1040x more:label_form_201040x more:taxes You can also find federal per diem rates at www. Form 1040x more:label_form_201040x more:taxes gsa. Form 1040x more:label_form_201040x more:taxes gov/perdiem. Form 1040x more:label_form_201040x more:taxes The standard meal allowance. Form 1040x more:label_form_201040x more:taxes   The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). Form 1040x more:label_form_201040x more:taxes The rate for most small localities in the United States is $46 a day. Form 1040x more:label_form_201040x more:taxes Most major cities and many other localities qualify for higher rates. Form 1040x more:label_form_201040x more:taxes You can find this information on the Internet at www. Form 1040x more:label_form_201040x more:taxes gsa. Form 1040x more:label_form_201040x more:taxes gov/perdiem. Form 1040x more:label_form_201040x more:taxes   You receive an allowance only for meals and incidental expenses when your employer does one of the following. Form 1040x more:label_form_201040x more:taxes Provides you with lodging (furnishes it in kind). Form 1040x more:label_form_201040x more:taxes Reimburses you, based on your receipts, for the actual cost of your lodging. Form 1040x more:label_form_201040x more:taxes Pays the hotel, motel, etc. Form 1040x more:label_form_201040x more:taxes , directly for your lodging. Form 1040x more:label_form_201040x more:taxes Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck. Form 1040x more:label_form_201040x more:taxes Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled. Form 1040x more:label_form_201040x more:taxes High-low rate. Form 1040x more:label_form_201040x more:taxes   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Form 1040x more:label_form_201040x more:taxes It eliminates the need to keep a current list of the per diem rates for each city. Form 1040x more:label_form_201040x more:taxes   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 (including $65 for M&IE) for certain high-cost locations. Form 1040x more:label_form_201040x more:taxes All other areas have a per diem amount of $163 (including $52 for M&IE). Form 1040x more:label_form_201040x more:taxes For more information, see Notice 2012-63, which can be found on the Internet at www. Form 1040x more:label_form_201040x more:taxes irs. Form 1040x more:label_form_201040x more:taxes gov/irb/2012-42_IRB/ar12. Form 1040x more:label_form_201040x more:taxes html. Form 1040x more:label_form_201040x more:taxes    Effective October 1, 2013, the per diem rate for certain high-cost locations increased to $251 (including $65 for M&IE). Form 1040x more:label_form_201040x more:taxes The rate for all other locations increased to $170 (including $52 for M&IE). Form 1040x more:label_form_201040x more:taxes Employers who did not use the high-low method during the first 9 months of 2013 cannot begin to use it before 2014. Form 1040x more:label_form_201040x more:taxes For more information, see Notice 2013-65, which can be found on the Internet at www. Form 1040x more:label_form_201040x more:taxes irs. Form 1040x more:label_form_201040x more:taxes gov/pub/irs-drop/n-13–65. Form 1040x more:label_form_201040x more:taxes pdf and Revenue Procedure 2011-47 at www. Form 1040x more:label_form_201040x more:taxes irs. Form 1040x more:label_form_201040x more:taxes gov/irb/2011-42_IRB/ar12. Form 1040x more:label_form_201040x more:taxes html. Form 1040x more:label_form_201040x more:taxes Prorating the standard meal allowance on partial days of travel. Form 1040x more:label_form_201040x more:taxes   The standard meal allowance is for a full 24-hour day of travel. Form 1040x more:label_form_201040x more:taxes If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. Form 1040x more:label_form_201040x more:taxes This rule also applies if your employer uses the regular federal per diem rate or the high-low rate. Form 1040x more:label_form_201040x more:taxes   You can use either of the following methods to figure the federal M&IE for that day. Form 1040x more:label_form_201040x more:taxes Method 1: For the day you depart, add 3/4 of the standard meal allowance amount for that day. Form 1040x more:label_form_201040x more:taxes For the day you return, add 3/4 of the standard meal allowance amount for the preceding day. Form 1040x more:label_form_201040x more:taxes Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. Form 1040x more:label_form_201040x more:taxes For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a. Form 1040x more:label_form_201040x more:taxes m. Form 1040x more:label_form_201040x more:taxes of one day to 5 p. Form 1040x more:label_form_201040x more:taxes m. Form 1040x more:label_form_201040x more:taxes of the next day as being no more than the federal rate. Form 1040x more:label_form_201040x more:taxes This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate. Form 1040x more:label_form_201040x more:taxes The standard mileage rate. Form 1040x more:label_form_201040x more:taxes   This is a set rate per mile that you can use to compute your deductible car expenses. Form 1040x more:label_form_201040x more:taxes For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Form 1040x more:label_form_201040x more:taxes Fixed and variable rate (FAVR). Form 1040x more:label_form_201040x more:taxes   This is an allowance your employer may use to reimburse your car expenses. Form 1040x more:label_form_201040x more:taxes Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc. Form 1040x more:label_form_201040x more:taxes ) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc. Form 1040x more:label_form_201040x more:taxes ). Form 1040x more:label_form_201040x more:taxes If your employer chooses to use this method, your employer will request the necessary records from you. Form 1040x more:label_form_201040x more:taxes Reporting your expenses with a per diem or car allowance. Form 1040x more:label_form_201040x more:taxes   If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting. Form 1040x more:label_form_201040x more:taxes The federal rate. Form 1040x more:label_form_201040x more:taxes Whether the allowance or your actual expenses were more than the federal rate. Form 1040x more:label_form_201040x more:taxes The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate. Form 1040x more:label_form_201040x more:taxes Allowance less than or equal to the federal rate. Form 1040x more:label_form_201040x more:taxes   If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. Form 1040x more:label_form_201040x more:taxes You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance. Form 1040x more:label_form_201040x more:taxes   However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). Form 1040x more:label_form_201040x more:taxes If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. Form 1040x more:label_form_201040x more:taxes If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes In April, Jeremy takes a 2-day business trip to Denver. Form 1040x more:label_form_201040x more:taxes The federal rate for Denver is $215 per day. Form 1040x more:label_form_201040x more:taxes As required by his employer's accountable plan, he accounts for the time (dates), place, and business purpose of the trip. Form 1040x more:label_form_201040x more:taxes His employer reimburses him $215 a day ($430 total) for living expenses. Form 1040x more:label_form_201040x more:taxes Jeremy's living expenses in Denver are not more than $215 a day. Form 1040x more:label_form_201040x more:taxes Jeremy's employer does not include any of the reimbursement on his Form W-2 and Jeremy does not deduct the expenses on his return. Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes In June, Matt takes a 2-day business trip to Boston. Form 1040x more:label_form_201040x more:taxes Matt's employer uses the high-low method to reimburse employees. Form 1040x more:label_form_201040x more:taxes Since Boston is a high-cost area, Matt is given an advance of $242 a day ($484 total) for his lodging, meals, and incidental expenses. Form 1040x more:label_form_201040x more:taxes Matt's actual expenses totaled $700. Form 1040x more:label_form_201040x more:taxes Since Matt's $700 of expenses are more than his $484 advance, he includes the excess expenses when he itemizes his deductions. Form 1040x more:label_form_201040x more:taxes Matt completes Form 2106 (showing all of his expenses and reimbursements). Form 1040x more:label_form_201040x more:taxes He must also allocate his reimbursement between his meals and other expenses as discussed later under Completing Forms 2106 and 2106-EZ . Form 1040x more:label_form_201040x more:taxes Example 3. Form 1040x more:label_form_201040x more:taxes Nicole drives 10,000 miles in 2013 for business. Form 1040x more:label_form_201040x more:taxes Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Form 1040x more:label_form_201040x more:taxes Her employer pays her a mileage allowance of 40 cents a mile. Form 1040x more:label_form_201040x more:taxes Since Nicole's $5,650 expense computed under the standard mileage rate (10,000 miles x 56½ cents) is more than her $4,000 reimbursement (10,000 miles × 40 cents), she itemizes her deductions to claim the excess expense. Form 1040x more:label_form_201040x more:taxes Nicole completes Form 2106 (showing all her expenses and reimbursements) and enters $1,650 ($5,650 − $4,000) as an itemized deduction. Form 1040x more:label_form_201040x more:taxes Allowance more than the federal rate. Form 1040x more:label_form_201040x more:taxes   If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 12 of your Form W-2. Form 1040x more:label_form_201040x more:taxes This amount is not taxable. Form 1040x more:label_form_201040x more:taxes However, the excess allowance will be included in box 1 of your Form W-2. Form 1040x more:label_form_201040x more:taxes You must report this part of your allowance as if it were wage income. Form 1040x more:label_form_201040x more:taxes   If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return. Form 1040x more:label_form_201040x more:taxes   However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. Form 1040x more:label_form_201040x more:taxes You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 12 of your Form W-2) and all your expenses. Form 1040x more:label_form_201040x more:taxes You should be able to prove these amounts to the IRS. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes Laura lives and works in Austin. Form 1040x more:label_form_201040x more:taxes In July her employer sent her to Albuquerque for 4 days on business. Form 1040x more:label_form_201040x more:taxes Laura's employer paid the hotel directly for her lodging and reimbursed Laura $65 a day ($260 total) for meals and incidental expenses. Form 1040x more:label_form_201040x more:taxes Laura's actual meal expenses were not more than the federal rate for Albuquerque, which is $56 per day. Form 1040x more:label_form_201040x more:taxes Table 6-1. Form 1040x more:label_form_201040x more:taxes Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements IF the type of reimbursement (or  other expense allowance)  arrangement is under: THEN the employer reports on Form W-2: AND the employee reports on  Form 2106: * An accountable plan with: Actual expense reimbursement: Adequate accounting made and excess returned. Form 1040x more:label_form_201040x more:taxes No amount. Form 1040x more:label_form_201040x more:taxes No amount. Form 1040x more:label_form_201040x more:taxes Actual expense reimbursement: Adequate accounting and return of excess both required but excess not returned. Form 1040x more:label_form_201040x more:taxes The excess amount as wages in box 1. Form 1040x more:label_form_201040x more:taxes No amount. Form 1040x more:label_form_201040x more:taxes Per diem or mileage allowance up to the federal rate: Adequate accounting made and excess returned. Form 1040x more:label_form_201040x more:taxes No amount. Form 1040x more:label_form_201040x more:taxes All expenses and reimbursements only if excess expenses are claimed. Form 1040x more:label_form_201040x more:taxes Otherwise, form is not filed. Form 1040x more:label_form_201040x more:taxes Per diem or mileage allowance up to the federal rate: Adequate accounting and return of excess both required but excess not returned. Form 1040x more:label_form_201040x more:taxes The excess amount as wages in box 1. Form 1040x more:label_form_201040x more:taxes The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Form 1040x more:label_form_201040x more:taxes No amount. Form 1040x more:label_form_201040x more:taxes Per diem or mileage allowance exceeds the federal rate: Adequate accounting up to the federal rate only and excess not returned. Form 1040x more:label_form_201040x more:taxes The excess amount as wages in box 1. Form 1040x more:label_form_201040x more:taxes The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Form 1040x more:label_form_201040x more:taxes All expenses (and reimbursements reported on Form W-2, box 12) only if expenses in excess of the federal rate are claimed. Form 1040x more:label_form_201040x more:taxes Otherwise, form is not filed. Form 1040x more:label_form_201040x more:taxes A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan. Form 1040x more:label_form_201040x more:taxes The entire amount as wages in box 1. Form 1040x more:label_form_201040x more:taxes All expenses. Form 1040x more:label_form_201040x more:taxes No reimbursement plan: The entire amount as wages in box 1. Form 1040x more:label_form_201040x more:taxes All expenses. Form 1040x more:label_form_201040x more:taxes * You may be able to use Form 2106-EZ. Form 1040x more:label_form_201040x more:taxes See Completing Forms 2106 and 2106-EZ . Form 1040x more:label_form_201040x more:taxes Her employer included the $36 that was more than the federal rate (($65 − $56) × 4) in box 1 of Laura's Form W-2. Form 1040x more:label_form_201040x more:taxes Her employer shows $224 ($56 a day × 4) in box 12 of her Form W-2. Form 1040x more:label_form_201040x more:taxes This amount is not included in Laura's income. Form 1040x more:label_form_201040x more:taxes Laura does not have to complete Form 2106; however, she must include the $36 in her gross income as wages (by reporting the total amount shown in box 1 of her Form W-2). Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes Joe also lives in Austin and works for the same employer as Laura. Form 1040x more:label_form_201040x more:taxes In May the employer sent Joe to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. Form 1040x more:label_form_201040x more:taxes The employer reimbursed Joe $75 a day for his meals and incidental expenses. Form 1040x more:label_form_201040x more:taxes The federal rate for San Diego is $71 a day. Form 1040x more:label_form_201040x more:taxes Joe can prove that his actual meal expenses totaled $380. Form 1040x more:label_form_201040x more:taxes His employer's accountable plan will not pay more than $75 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $380. Form 1040x more:label_form_201040x more:taxes However, he does account for the time, place, and business purpose of the trip. Form 1040x more:label_form_201040x more:taxes This is Joe's only business trip this year. Form 1040x more:label_form_201040x more:taxes Joe was reimbursed $300 ($75 × 4 days), which is $16 more than the federal rate of $284 ($71 × 4 days). Form 1040x more:label_form_201040x more:taxes The employer includes the $16 as income on Joe's Form W-2 in box 1. Form 1040x more:label_form_201040x more:taxes The employer also enters $284 in box 12 of Joe's Form W-2. Form 1040x more:label_form_201040x more:taxes Joe completes Form 2106 to figure his deductible expenses. Form 1040x more:label_form_201040x more:taxes He enters the total of his actual expenses for the year ($380) on Form 2106. Form 1040x more:label_form_201040x more:taxes He also enters the reimbursements that were not included in his income ($284). Form 1040x more:label_form_201040x more:taxes His total deductible expense, before the 50% limit, is $96. Form 1040x more:label_form_201040x more:taxes After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $48, as an itemized deduction. Form 1040x more:label_form_201040x more:taxes Example 3. Form 1040x more:label_form_201040x more:taxes Debbie drives 10,000 miles in 2013 for business. Form 1040x more:label_form_201040x more:taxes Under her employer's accountable plan, she gets reimbursed 60 cents a mile, which is more than the standard mileage rate. Form 1040x more:label_form_201040x more:taxes Her total reimbursement is $6,000. Form 1040x more:label_form_201040x more:taxes Debbie's employer must include the reimbursement amount up to the standard mileage rate, $5,650 (10,000 × 56½ cents), in box 12 of her Form W-2. Form 1040x more:label_form_201040x more:taxes That amount is not taxable. Form 1040x more:label_form_201040x more:taxes Her employer must also include $350 ($6,000 − $5,650) in box 1 of her Form W-2. Form 1040x more:label_form_201040x more:taxes This is the reimbursement that is more than the standard mileage rate. Form 1040x more:label_form_201040x more:taxes If Debbie's expenses are equal to or less than the standard mileage rate, she would not complete Form 2106. Form 1040x more:label_form_201040x more:taxes If her expenses are more than the standard mileage rate, she would complete Form 2106 and report her total expenses and reimbursement (shown in box 12 of her Form W-2). Form 1040x more:label_form_201040x more:taxes She would then claim the excess expenses as an itemized deduction. Form 1040x more:label_form_201040x more:taxes Returning Excess Reimbursements Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Form 1040x more:label_form_201040x more:taxes Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes For example, if you received a travel advance and you did not spend all the money on business-related expenses or you do not have proof of all your expenses, you have an excess reimbursement. Form 1040x more:label_form_201040x more:taxes “ Adequate accounting ” and “ reasonable period of time ” were discussed earlier in this chapter. Form 1040x more:label_form_201040x more:taxes Travel advance. Form 1040x more:label_form_201040x more:taxes   You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Form 1040x more:label_form_201040x more:taxes Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes   If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later). Form 1040x more:label_form_201040x more:taxes Unproved amounts. Form 1040x more:label_form_201040x more:taxes   If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproved amount of the travel advance within a reasonable period of time. Form 1040x more:label_form_201040x more:taxes If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later). Form 1040x more:label_form_201040x more:taxes Per diem allowance more than federal rate. Form 1040x more:label_form_201040x more:taxes   If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. Form 1040x more:label_form_201040x more:taxes However, the difference will be reported as wages on your Form W-2. Form 1040x more:label_form_201040x more:taxes This excess amount is considered paid under a nonaccountable plan (discussed later). Form 1040x more:label_form_201040x more:taxes Example. Form 1040x more:label_form_201040x more:taxes Your employer sends you on a 5-day business trip to Phoenix in March 2013 and gives you a $400 ($80 × 5 days) advance to cover your meals and incidental expenses. Form 1040x more:label_form_201040x more:taxes The federal per diem for meals and incidental expenses for Phoenix is $71. Form 1040x more:label_form_201040x more:taxes Your trip lasts only 3 days. Form 1040x more:label_form_201040x more:taxes Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you did not travel. Form 1040x more:label_form_201040x more:taxes For the 3 days you did travel you do not have to return the $27 difference between the allowance you received and the federal rate for Phoenix (($80 − $71) × 3 days). Form 1040x more:label_form_201040x more:taxes However, the $27 will be reported on your Form W-2 as wages. Form 1040x more:label_form_201040x more:taxes Nonaccountable Plans A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. Form 1040x more:label_form_201040x more:taxes In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan: Excess reimbursements you fail to return to your employer, and Reimbursement of nondeductible expenses related to your employer's business. Form 1040x more:label_form_201040x more:taxes See Reimbursement of nondeductible expenses , earlier, under Accountable Plans. Form 1040x more:label_form_201040x more:taxes An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses. Form 1040x more:label_form_201040x more:taxes If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer. Form 1040x more:label_form_201040x more:taxes Reporting your expenses under a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Form 1040x more:label_form_201040x more:taxes Your employer will report the total in box 1 of your Form W-2. Form 1040x more:label_form_201040x more:taxes    You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Form 1040x more:label_form_201040x more:taxes Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Form 1040x more:label_form_201040x more:taxes Also, your total expenses will be subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes Kim's employer gives her $1,000 a month ($12,000 total for the year) for her business expenses. Form 1040x more:label_form_201040x more:taxes Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend. Form 1040x more:label_form_201040x more:taxes Kim is being reimbursed under a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes Her employer will include the $12,000 on Kim's Form W-2 as if it were wages. Form 1040x more:label_form_201040x more:taxes If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions. Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes Kevin is paid $2,000 a month by his employer. Form 1040x more:label_form_201040x more:taxes On days that he travels away from home on business, his employer designates $50 a day of his salary as paid to reimburse his travel expenses. Form 1040x more:label_form_201040x more:taxes Because his employer would pay Kevin his monthly salary whether or not he was traveling away from home, the arrangement is a nonaccountable plan. Form 1040x more:label_form_201040x more:taxes No part of the $50 a day designated by his employer is treated as paid under an accountable plan. Form 1040x more:label_form_201040x more:taxes Rules for Independent Contractors and Clients This section provides rules for independent contractors who incur expenses on behalf of a client or customer. Form 1040x more:label_form_201040x more:taxes The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers. Form 1040x more:label_form_201040x more:taxes You are considered an independent contractor if you are self-employed and you perform services for a customer or client. Form 1040x more:label_form_201040x more:taxes Accounting to Your Client If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. Form 1040x more:label_form_201040x more:taxes If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. Form 1040x more:label_form_201040x more:taxes You must keep adequate records of these expenses whether or not you account to your client for these expenses. Form 1040x more:label_form_201040x more:taxes If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses. Form 1040x more:label_form_201040x more:taxes See 50% Limit in chapter 2. Form 1040x more:label_form_201040x more:taxes Adequate accounting. Form 1040x more:label_form_201040x more:taxes   As a self-employed person, you adequately account by reporting your actual expenses. Form 1040x more:label_form_201040x more:taxes You should follow the recordkeeping rules in chapter 5 . Form 1040x more:label_form_201040x more:taxes How to report. Form 1040x more:label_form_201040x more:taxes   For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter. Form 1040x more:label_form_201040x more:taxes Required Records for Clients or Customers If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. Form 1040x more:label_form_201040x more:taxes However, you must keep records if: You reimburse the contractor for entertainment expenses incurred on your behalf, and The contractor adequately accounts to you for these expenses. Form 1040x more:label_form_201040x more:taxes Contractor adequately accounts. Form 1040x more:label_form_201040x more:taxes   If the contractor adequately accounts to you for entertainment expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Form 1040x more:label_form_201040x more:taxes Use your records as proof for a deduction on your tax return. Form 1040x more:label_form_201040x more:taxes If entertainment expenses are accounted for separately, you are subject to the 50% limit on entertainment. Form 1040x more:label_form_201040x more:taxes If the contractor adequately accounts to you for reimbursed amounts, you do not have to report the amounts on an information return. Form 1040x more:label_form_201040x more:taxes Contractor does not adequately account. Form 1040x more:label_form_201040x more:taxes    If the contractor does not adequately account to you for allowances or reimbursements of entertainment expenses, you do not have to keep records of these items. Form 1040x more:label_form_201040x more:taxes You are not subject to the 50% limit on entertainment in this case. Form 1040x more:label_form_201040x more:taxes You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. Form 1040x more:label_form_201040x more:taxes However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year. Form 1040x more:label_form_201040x more:taxes How To Use Per Diem Rate Tables This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year. Form 1040x more:label_form_201040x more:taxes The Two Substantiation Methods High-low method. Form 1040x more:label_form_201040x more:taxes   IRS notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Form 1040x more:label_form_201040x more:taxes Notice 2012–63, available at www. Form 1040x more:label_form_201040x more:taxes irs. Form 1040x more:label_form_201040x more:taxes gov/irb/2012–42_IRB/ar12. Form 1040x more:label_form_201040x more:taxes html, lists the localities that are eligible for $242 ($65 meals and incidental expenses (M&IE)) per diem, effective October 1, 2012. Form 1040x more:label_form_201040x more:taxes For travel on or after October 1, 2012, all other localities within CONUS are eligible for $163 ($52 M&IE) per diem under the high-low method. Form 1040x more:label_form_201040x more:taxes   Notice 2013–65, available at www. Form 1040x more:label_form_201040x more:taxes irs. Form 1040x more:label_form_201040x more:taxes gov/pub/irs-drop/n-13–65. Form 1040x more:label_form_201040x more:taxes pdf, lists the localities that are eligible for $251 ($65 M&IE) per diem, effective October 1, 2013. Form 1040x more:label_form_201040x more:taxes For travel on or after October 1, 2013, the per diem for all other localities increased to $170 ($52 M&IE). Form 1040x more:label_form_201040x more:taxes Regular federal per diem rate method. Form 1040x more:label_form_201040x more:taxes   Regular federal per diem rates are published by the General Services Administration (GSA). Form 1040x more:label_form_201040x more:taxes Both tables include the separate rate for meals and incidental expenses (M&IE) for each locality. Form 1040x more:label_form_201040x more:taxes The rates listed for FY2013 at www. Form 1040x more:label_form_201040x more:taxes gsa. Form 1040x more:label_form_201040x more:taxes gov/perdiem are effective October 1, 2012 and those listed for FY2014 are effective October 1, 2013. Form 1040x more:label_form_201040x more:taxes The standard rate for all locations within CONUS not specifically listed for FY2013 is $123 ($77 for lodging and $46 for M&IE). Form 1040x more:label_form_201040x more:taxes For FY2014, this rate increased to $129 ($83 for lodging and $46 for M&IE). Form 1040x more:label_form_201040x more:taxes Transition Rules The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally October 1) through December 31. Form 1040x more:label_form_201040x more:taxes During this period, you generally may change to the new rates or finish out the year with the rates you had been using. Form 1040x more:label_form_201040x more:taxes High-low method. Form 1040x more:label_form_201040x more:taxes   If you use the high-low substantiation method, when new rates become effective (generally October 1) you can either continue with the rates you used for the first part of the year or change to the new rates. Form 1040x more:label_form_201040x more:taxes However, you must continue using the high-low method for the rest of the calendar year (through December 31). Form 1040x more:label_form_201040x more:taxes If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year. Form 1040x more:label_form_201040x more:taxes   The new rates and localities for the high-low method are included each year in a notice that is generally published in mid-to-late-September. Form 1040x more:label_form_201040x more:taxes You can find the notice in the weekly Internal Revenue Bulletin (IRB) on the Internet at www. Form 1040x more:label_form_201040x more:taxes irs. Form 1040x more:label_form_201040x more:taxes gov/irb. Form 1040x more:label_form_201040x more:taxes Federal per diem rate method. Form 1040x more:label_form_201040x more:taxes   New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Form 1040x more:label_form_201040x more:taxes Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). Form 1040x more:label_form_201040x more:taxes However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates. Form 1040x more:label_form_201040x more:taxes   The new federal CONUS per diem rates are published each year, generally early in September, on the Internet. Form 1040x more:label_form_201040x more:taxes Go to www. Form 1040x more:label_form_201040x more:taxes gsa. Form 1040x more:label_form_201040x more:taxes gov/perdiem. Form 1040x more:label_form_201040x more:taxes Per diem rates for localities listed for FY2014 may change at any time. Form 1040x more:label_form_201040x more:taxes To be sure you have the most current rate, check www. Form 1040x more:label_form_201040x more:taxes gsa. Form 1040x more:label_form_201040x more:taxes gov/perdiem. Form 1040x more:label_form_201040x more:taxes Completing Forms 2106 and 2106-EZ This section briefly describes how employees complete Forms 2106 and 2106-EZ. Form 1040x more:label_form_201040x more:taxes Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. Form 1040x more:label_form_201040x more:taxes The instructions for the forms have more information on completing them. Form 1040x more:label_form_201040x more:taxes If you are self-employed, do not file Form 2106 or 2106-EZ. Form 1040x more:label_form_201040x more:taxes Report your expenses on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Form 1040x more:label_form_201040x more:taxes See the instructions for the form that you must file. Form 1040x more:label_form_201040x more:taxes Form 2106-EZ. Form 1040x more:label_form_201040x more:taxes   You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. Form 1040x more:label_form_201040x more:taxes You can use this form if you meet all the following conditions. Form 1040x more:label_form_201040x more:taxes You are an employee deducting ordinary and necessary expenses attributable to your job. Form 1040x more:label_form_201040x more:taxes You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Form 1040x more:label_form_201040x more:taxes If you are claiming car expenses, you are using the standard mileage rate. Form 1040x more:label_form_201040x more:taxes Car expenses. Form 1040x more:label_form_201040x more:taxes   If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. Form 1040x more:label_form_201040x more:taxes These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Form 1040x more:label_form_201040x more:taxes Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and Part I, line 1. Form 1040x more:label_form_201040x more:taxes Information on use of cars. Form 1040x more:label_form_201040x more:taxes   If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. Form 1040x more:label_form_201040x more:taxes The information relates to the following items. Form 1040x more:label_form_201040x more:taxes Date placed in service. Form 1040x more:label_form_201040x more:taxes Mileage (total, business, commuting, and other personal mileage). Form 1040x more:label_form_201040x more:taxes Percentage of business use. Form 1040x more:label_form_201040x more:taxes After-work use. Form 1040x more:label_form_201040x more:taxes Use of other vehicles. Form 1040x more:label_form_201040x more:taxes Whether you have evidence to support the deduction. Form 1040x more:label_form_201040x more:taxes Whether or not the evidence is written. Form 1040x more:label_form_201040x more:taxes Employees must complete Form 2106, Part II, Section A, or Form 2106-EZ, Part II, to provide this information. Form 1040x more:label_form_201040x more:taxes Standard mileage rate. Form 1040x more:label_form_201040x more:taxes   If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. Form 1040x more:label_form_201040x more:taxes The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. Form 1040x more:label_form_201040x more:taxes In addition, on Part 1, line 2, you can deduct parking fees and tolls that apply to the business use of the car. Form 1040x more:label_form_201040x more:taxes If you file Form 2106-EZ, complete Part I, line 1, for the standard mileage rate and line 2 for parking fees and tolls. Form 1040x more:label_form_201040x more:taxes See Standard Mileage Rate in chapter 4 for information on using this rate. Form 1040x more:label_form_201040x more:taxes Actual expenses. Form 1040x more:label_form_201040x more:taxes   If you claim a deduction based on actual car expenses, you cannot use Form 2106-EZ. Form 1040x more:label_form_201040x more:taxes You must complete Form 2106, Part II, Section C. Form 1040x more:label_form_201040x more:taxes In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim. Form 1040x more:label_form_201040x more:taxes   If you are still using a car that is fully depreciated, continue to complete Section C. Form 1040x more:label_form_201040x more:taxes Since you have no depreciation deduction, enter zero on line 28. Form 1040x more:label_form_201040x more:taxes In this case, do not complete Section D. Form 1040x more:label_form_201040x more:taxes Car rentals. Form 1040x more:label_form_201040x more:taxes   If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount as described in chapter 4. Form 1040x more:label_form_201040x more:taxes If so, you can show your car expenses and any inclusion amount as follows. Form 1040x more:label_form_201040x more:taxes Compute the inclusion amount without taking into account your business use percentage for the tax year. Form 1040x more:label_form_201040x more:taxes Report the inclusion amount from (1) on Form 2106, Part II, line 24b. Form 1040x more:label_form_201040x more:taxes Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)). Form 1040x more:label_form_201040x more:taxes The net amount of car rental expenses will be adjusted on Form 2106, Part II, line 27, to reflect the percentage of business use for the tax year. Form 1040x more:label_form_201040x more:taxes Transportation expenses. Form 1040x more:label_form_201040x more:taxes   Show your transportation expenses that did not involve overnight travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Form 1040x more:label_form_201040x more:taxes Also include on this line business expenses you have for parking fees and tolls. Form 1040x more:label_form_201040x more:taxes Do not include expenses of operating your car or expenses of commuting between your home and work. Form 1040x more:label_form_201040x more:taxes Employee business expenses other than meals and entertainment. Form 1040x more:label_form_201040x more:taxes   Show your other employee business expenses on Form 2106, lines 3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Form 1040x more:label_form_201040x more:taxes Do not include expenses for meals and entertainment on those lines. Form 1040x more:label_form_201040x more:taxes Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications. Form 1040x more:label_form_201040x more:taxes    If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Form 1040x more:label_form_201040x more:taxes Claim these amounts directly on Schedule A (Form 1040), line 21. Form 1040x more:label_form_201040x more:taxes List the type and amount of each expense on the dotted lines and include the total on line 21. Form 1040x more:label_form_201040x more:taxes Meal and entertainment expenses. Form 1040x more:label_form_201040x more:taxes   Show the full amount of your expenses for business-related meals and entertainment on Form 2106, line 5, Column B. Form 1040x more:label_form_201040x more:taxes Include meals while away from your tax home overnight and other business meals and entertainment. Form 1040x more:label_form_201040x more:taxes Enter 50% of the line 8, Column B, meal and entertainment expenses on line 9, Column B. Form 1040x more:label_form_201040x more:taxes   If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Form 1040x more:label_form_201040x more:taxes Enter the result on line 5. Form 1040x more:label_form_201040x more:taxes Hours of service limits. Form 1040x more:label_form_201040x more:taxes   If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to “hours of service” limits in chapter 2), use 80% instead of 50% for meals while away from your tax home. Form 1040x more:label_form_201040x more:taxes Reimbursements. Form 1040x more:label_form_201040x more:taxes   Enter on Form 2106, line 7 (you cannot use Form 2106-EZ) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. Form 1040x more:label_form_201040x more:taxes This includes any amount reported under code L in box 12 of Form W-2. Form 1040x more:label_form_201040x more:taxes Allocating your reimbursement. Form 1040x more:label_form_201040x more:taxes   If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. Form 1040x more:label_form_201040x more:taxes This is necessary when your employer pays your reimbursement in the following manner: Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and Does not clearly identify how much is for deductible meals and/or entertainment. Form 1040x more:label_form_201040x more:taxes You must allocate that single payment so that you know how much to enter on Form 2106, line 7, Column A and Column B. Form 1040x more:label_form_201040x more:taxes Example. Form 1040x more:label_form_201040x more:taxes Rob's employer paid him an expense allowance of $12,000 this year under an accountable plan. Form 1040x more:label_form_201040x more:taxes The $12,000 payment consisted of $5,000 for airfare and $7,000 for meals, entertainment, and car expenses. Form 1040x more:label_form_201040x more:taxes The employer did not clearly show how much of the $7,000 was for the cost of deductible meals and entertainment. Form 1040x more:label_form_201040x more:taxes Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for meals and entertainment, and $4,000 for car expenses). Form 1040x more:label_form_201040x more:taxes Since the airfare allowance was clearly identified, Rob knows that $5,000 of the payment goes in Column A, line 7, of Form 2106. Form 1040x more:label_form_201040x more:taxes To allocate the remaining $7,000, Rob uses the worksheet from the Instructions for Form 2106. Form 1040x more:label_form_201040x more:taxes His completed worksheet follows. Form 1040x more:label_form_201040x more:taxes Reimbursement Allocation Worksheet (Keep for your records)   1. Form 1040x more:label_form_201040x more:taxes Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2 $7,000   2. Form 1040x more:label_form_201040x more:taxes Enter the total amount of your expenses for the periods covered by this reimbursement 8,500   3. Form 1040x more:label_form_201040x more:taxes Of the amount on line 2, enter your total expense for meals and entertainment 4,500   4. Form 1040x more:label_form_201040x more:taxes Divide line 3 by line 2. Form 1040x more:label_form_201040x more:taxes Enter the result as a decimal (rounded to at least three places) . Form 1040x more:label_form_201040x more:taxes 529   5. Form 1040x more:label_form_201040x more:taxes Multiply line 1 by line 4. Form 1040x more:label_form_201040x more:taxes Enter the result here and in Column B, line 7 3,703   6. Form 1040x more:label_form_201040x more:taxes Subtract line 5 from line 1. Form 1040x more:label_form_201040x more:taxes Enter the result here and in Column A, line 7 $3,297 On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and $3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B. Form 1040x more:label_form_201040x more:taxes After you complete the form. Form 1040x more:label_form_201040x more:taxes   After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. Form 1040x more:label_form_201040x more:taxes For most taxpayers, this is line 21 of Schedule A (Form 1040). Form 1040x more:label_form_201040x more:taxes However, if you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later. Form 1040x more:label_form_201040x more:taxes Limits on employee business expenses. Form 1040x more:label_form_201040x more:taxes   Your employee business expenses may be subject to either of the limits described next. Form 1040x more:label_form_201040x more:taxes They are figured in the following order on the specified form. Form 1040x more:label_form_201040x more:taxes 1. Form 1040x more:label_form_201040x more:taxes Limit on meals and entertainment. Form 1040x more:label_form_201040x more:taxes   Certain meal and entertainment expenses are subject to a 50% limit. Form 1040x more:label_form_201040x more:taxes If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ. Form 1040x more:label_form_201040x more:taxes (See 50% Limit in chapter 2. Form 1040x more:label_form_201040x more:taxes ) 2. Form 1040x more:label_form_201040x more:taxes Limit on miscellaneous itemized deductions. Form 1040x more:label_form_201040x more:taxes   If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Form 1040x more:label_form_201040x more:taxes Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2%-of-adjusted-gross-income limit. Form 1040x more:label_form_201040x more:taxes This limit is figured on line 26 of Schedule A (Form 1040). Form 1040x more:label_form_201040x more:taxes 3. Form 1040x more:label_form_201040x more:taxes Limit on total itemized deductions. Form 1040x more:label_form_201040x more:taxes   If your adjusted gross income (line 38 of Form 1040) is more than $300,000 ($150,000 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. Form 1040x more:label_form_201040x more:taxes See your form instructions for information on how to figure this limit. Form 1040x more:label_form_201040x more:taxes Special Rules This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. Form 1040x more:label_form_201040x more:taxes Armed Forces Reservists Traveling More Than 100 Miles From Home If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Form 1040x more:label_form_201040x more:taxes The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Form 1040x more:label_form_201040x more:taxes See Per Diem and Car Allowances , earlier, for more information. Form 1040x more:label_form_201040x more:taxes Any expenses in excess of these amounts can be claimed only as a miscellaneous itemized deduction subject to the 2% limit. Form 1040x more:label_form_201040x more:taxes Member of a reserve component. Form 1040x more:label_form_201040x more:taxes   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service. Form 1040x more:label_form_201040x more:taxes How to report. Form 1040x more:label_form_201040x more:taxes   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Form 1040x more:label_form_201040x more:taxes Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Form 1040x more:label_form_201040x more:taxes Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. Form 1040x more:label_form_201040x more:taxes   You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Form 1040x more:label_form_201040x more:taxes Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21. Form 1040x more:label_form_201040x more:taxes Officials Paid on a Fee Basis Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040). Form 1040x more:label_form_201040x more:taxes Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. Form 1040x more:label_form_201040x more:taxes They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction. Form 1040x more:label_form_201040x more:taxes If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Form 1040x more:label_form_201040x more:taxes Expenses of Certain Performing Artists If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Form 1040x more:label_form_201040x more:taxes To qualify, you must meet all of the following requirements. Form 1040x more:label_form_201040x more:taxes During the tax year, you perform services in the performing arts as an employee for at least two employers. Form 1040x more:label_form_201040x more:taxes You receive at least $200 each from any two of these employers. Form 1040x more:label_form_201040x more:taxes Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services. Form 1040x more:label_form_201040x more:taxes Your adjusted gross income is not more than $16,000 before deducting these business expenses. Form 1040x more:label_form_201040x more:taxes Special rules for married persons. Form 1040x more:label_form_201040x more:taxes   If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. Form 1040x more:label_form_201040x more:taxes If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. Form 1040x more:label_form_201040x more:taxes However, requirement (4) applies to your and your spouse's combined adjusted gross income. Form 1040x more:label_form_201040x more:taxes Where to report. Form 1040x more:label_form_201040x more:taxes   If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Form 1040x more:label_form_201040x more:taxes Then you include your performing-arts-related expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Form 1040x more:label_form_201040x more:taxes   If you do not meet all of the above requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Form 1040x more:label_form_201040x more:taxes Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business expenses as an itemized deduction on Schedule A (Form 1040), line 21. Form 1040x more:label_form_201040x more:taxes Impairment-Related Work Expenses of Disabled Employees If you are an employee with a physical or mental disability, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. Form 1040x more:label_form_201040x more:taxes After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 28, and identify the type and amount of this expense on the dotted line next to line 28. Form 1040x more:label_form_201040x more:taxes Enter your employee business expenses that are unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 21. Form 1040x more:label_form_201040x more:taxes Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work. Form 1040x more:label_form_201040x more:taxes You are disabled if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Form 1040x more:label_form_201040x more:taxes You can deduct impairment-related expenses as business expenses if they are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes You are blind. Form 1040x more:label_form_201040x more:taxes You must use a reader to do your work. Form 1040x more:label_form_201040x more:taxes You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Form 1040x more:label_form_201040x more:taxes The reader's services are only for your work. Form 1040x more:label_form_201040x more:taxes You can deduct your expenses for the reader as business expenses. Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes You are deaf. Form 1040x more:label_form_201040x more:taxes You must use a sign language interpreter during meetings while you are at work. Form 1040x more:label_form_201040x more:taxes The interpreter's services are used only for your work. Form 1040x more:label_form_201040x more:taxes You can deduct your expenses for the interpreter as business expenses. Form 1040x more:label_form_201040x more:taxes Prev  Up  Next   Home   More Online Publications
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The Form 1040x More:label_form_201040x More:taxes

Form 1040x more:label_form_201040x more:taxes Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Form 1040x more:label_form_201040x more:taxes Publication 946, How To Depreciate Property, contains information on depreciation. Form 1040x more:label_form_201040x more:taxes However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Form 1040x more:label_form_201040x more:taxes The new provisions are in the Supplement to Publication 946, which is reprinted below. Form 1040x more:label_form_201040x more:taxes Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Form 1040x more:label_form_201040x more:taxes The new law made several changes in the tax rules explained in the publication. Form 1040x more:label_form_201040x more:taxes Some of the changes apply to property placed in service during 2001. Form 1040x more:label_form_201040x more:taxes This supplemental publication describes those changes and explains what you should do if you are affected by them. Form 1040x more:label_form_201040x more:taxes The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Form 1040x more:label_form_201040x more:taxes The new law contains the following provisions. Form 1040x more:label_form_201040x more:taxes 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Form 1040x more:label_form_201040x more:taxes An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Form 1040x more:label_form_201040x more:taxes A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Form 1040x more:label_form_201040x more:taxes An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Form 1040x more:label_form_201040x more:taxes If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Form 1040x more:label_form_201040x more:taxes If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Form 1040x more:label_form_201040x more:taxes See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Form 1040x more:label_form_201040x more:taxes Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Form 1040x more:label_form_201040x more:taxes The allowance is an additional deduction of 30% of the property's depreciable basis. Form 1040x more:label_form_201040x more:taxes To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Form 1040x more:label_form_201040x more:taxes See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Form 1040x more:label_form_201040x more:taxes The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Form 1040x more:label_form_201040x more:taxes There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Form 1040x more:label_form_201040x more:taxes In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Form 1040x more:label_form_201040x more:taxes You did not elect to claim a section 179 deduction. Form 1040x more:label_form_201040x more:taxes You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Form 1040x more:label_form_201040x more:taxes You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Form 1040x more:label_form_201040x more:taxes You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Form 1040x more:label_form_201040x more:taxes You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Form 1040x more:label_form_201040x more:taxes Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Form 1040x more:label_form_201040x more:taxes It is new property of one of the following types. Form 1040x more:label_form_201040x more:taxes Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Form 1040x more:label_form_201040x more:taxes See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Form 1040x more:label_form_201040x more:taxes Water utility property. Form 1040x more:label_form_201040x more:taxes See 25-year property on page 22 in Publication 946. Form 1040x more:label_form_201040x more:taxes Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Form 1040x more:label_form_201040x more:taxes (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Form 1040x more:label_form_201040x more:taxes ) Qualified leasehold improvement property (defined later). Form 1040x more:label_form_201040x more:taxes It meets the following tests (explained later under Tests To Be Met). Form 1040x more:label_form_201040x more:taxes Acquisition date test. Form 1040x more:label_form_201040x more:taxes Placed in service date test. Form 1040x more:label_form_201040x more:taxes Original use test. Form 1040x more:label_form_201040x more:taxes It is not excepted property (explained later under Excepted Property). Form 1040x more:label_form_201040x more:taxes Qualified leasehold improvement property. Form 1040x more:label_form_201040x more:taxes    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Form 1040x more:label_form_201040x more:taxes The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Form 1040x more:label_form_201040x more:taxes That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Form 1040x more:label_form_201040x more:taxes The improvement is placed in service more than 3 years after the date the building was first placed in service. Form 1040x more:label_form_201040x more:taxes   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Form 1040x more:label_form_201040x more:taxes The enlargement of the building. Form 1040x more:label_form_201040x more:taxes Any elevator or escalator. Form 1040x more:label_form_201040x more:taxes Any structural component benefiting a common area. Form 1040x more:label_form_201040x more:taxes The internal structural framework of the building. Form 1040x more:label_form_201040x more:taxes   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Form 1040x more:label_form_201040x more:taxes However, a binding commitment between related persons is not treated as a lease. Form 1040x more:label_form_201040x more:taxes Related persons. Form 1040x more:label_form_201040x more:taxes   For this purpose, the following are related persons. Form 1040x more:label_form_201040x more:taxes Members of an affiliated group. Form 1040x more:label_form_201040x more:taxes The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Form 1040x more:label_form_201040x more:taxes An executor and a beneficiary of the same estate. Form 1040x more:label_form_201040x more:taxes Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Form 1040x more:label_form_201040x more:taxes Acquisition date test. Form 1040x more:label_form_201040x more:taxes    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Form 1040x more:label_form_201040x more:taxes   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Form 1040x more:label_form_201040x more:taxes Placed in service date test. Form 1040x more:label_form_201040x more:taxes   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Form 1040x more:label_form_201040x more:taxes   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Form 1040x more:label_form_201040x more:taxes Original use test. Form 1040x more:label_form_201040x more:taxes   The original use of the property must have begun with you after September 10, 2001. Form 1040x more:label_form_201040x more:taxes “Original use” means the first use to which the property is put, whether or not by you. Form 1040x more:label_form_201040x more:taxes Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Form 1040x more:label_form_201040x more:taxes Excepted Property The following property does not qualify for the special depreciation allowance. Form 1040x more:label_form_201040x more:taxes Property used by any person before September 11, 2001. Form 1040x more:label_form_201040x more:taxes Property required to be depreciated using ADS. Form 1040x more:label_form_201040x more:taxes This includes listed property used 50% or less in a qualified business use. Form 1040x more:label_form_201040x more:taxes Qualified New York Liberty Zone leasehold improvement property (defined next). Form 1040x more:label_form_201040x more:taxes Qualified New York Liberty Zone leasehold improvement property. Form 1040x more:label_form_201040x more:taxes   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Form 1040x more:label_form_201040x more:taxes The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Form 1040x more:label_form_201040x more:taxes The improvement is placed in service after September 10, 2001, and before January 1, 2007. Form 1040x more:label_form_201040x more:taxes No written binding contract for the improvement was in effect before September 11, 2001. Form 1040x more:label_form_201040x more:taxes Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Form 1040x more:label_form_201040x more:taxes If you make this election for any property, it applies to all property in the same property class placed in service during the year. Form 1040x more:label_form_201040x more:taxes To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Form 1040x more:label_form_201040x more:taxes When to make election. Form 1040x more:label_form_201040x more:taxes   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Form 1040x more:label_form_201040x more:taxes   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Form 1040x more:label_form_201040x more:taxes Attach the election statement to the amended return. Form 1040x more:label_form_201040x more:taxes At the top of the election statement, write “Filed pursuant to section 301. Form 1040x more:label_form_201040x more:taxes 9100–2. Form 1040x more:label_form_201040x more:taxes ” Revoking an election. Form 1040x more:label_form_201040x more:taxes   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Form 1040x more:label_form_201040x more:taxes A request to revoke the election is subject to a user fee. Form 1040x more:label_form_201040x more:taxes Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Form 1040x more:label_form_201040x more:taxes The rules apply to returns for the following years. Form 1040x more:label_form_201040x more:taxes 2000 fiscal years that end after September 10, 2001. Form 1040x more:label_form_201040x more:taxes 2001 calendar and fiscal years. Form 1040x more:label_form_201040x more:taxes Claiming the allowance. Form 1040x more:label_form_201040x more:taxes   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Form 1040x more:label_form_201040x more:taxes File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes Write “Filed Pursuant to Rev. Form 1040x more:label_form_201040x more:taxes Proc. Form 1040x more:label_form_201040x more:taxes 2002–33” at the top of the amended return. Form 1040x more:label_form_201040x more:taxes File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes Your return must be filed by the due date (including extensions). Form 1040x more:label_form_201040x more:taxes Write “Automatic Change Filed Under Rev. Form 1040x more:label_form_201040x more:taxes Proc. Form 1040x more:label_form_201040x more:taxes 2002–33” on the appropriate line of Form 3115. Form 1040x more:label_form_201040x more:taxes You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Form 1040x more:label_form_201040x more:taxes For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes You are an individual and you use the calendar year. Form 1040x more:label_form_201040x more:taxes You placed qualified property in service for your business in December 2001. Form 1040x more:label_form_201040x more:taxes You filed your 2001 income tax return before April 15, 2002. Form 1040x more:label_form_201040x more:taxes You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Form 1040x more:label_form_201040x more:taxes You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Form 1040x more:label_form_201040x more:taxes Proc. Form 1040x more:label_form_201040x more:taxes 2002–33” at the top of the amended return. Form 1040x more:label_form_201040x more:taxes You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes The facts concerning your 2001 return are the same as in Example 1. Form 1040x more:label_form_201040x more:taxes In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Form 1040x more:label_form_201040x more:taxes You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Form 1040x more:label_form_201040x more:taxes Proc. Form 1040x more:label_form_201040x more:taxes 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Form 1040x more:label_form_201040x more:taxes You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Form 1040x more:label_form_201040x more:taxes Electing not to claim the allowance. Form 1040x more:label_form_201040x more:taxes   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Form 1040x more:label_form_201040x more:taxes The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Form 1040x more:label_form_201040x more:taxes The statement can be either attached to or written on the return. Form 1040x more:label_form_201040x more:taxes You can, for example, write “not deducting 30%” on Form 4562. Form 1040x more:label_form_201040x more:taxes Deemed election. Form 1040x more:label_form_201040x more:taxes   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Form 1040x more:label_form_201040x more:taxes You will be treated as making the election if you meet both of the following conditions. Form 1040x more:label_form_201040x more:taxes You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Form 1040x more:label_form_201040x more:taxes You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Form 1040x more:label_form_201040x more:taxes See Claiming the allowance, earlier. Form 1040x more:label_form_201040x more:taxes Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Form 1040x more:label_form_201040x more:taxes Generally, the limit is increased from $3,060 to $7,660. Form 1040x more:label_form_201040x more:taxes However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Form 1040x more:label_form_201040x more:taxes Table 1 shows the maximum deduction amounts for 2001. Form 1040x more:label_form_201040x more:taxes Table 1. Form 1040x more:label_form_201040x more:taxes Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Form 1040x more:label_form_201040x more:taxes 11 Placed in Service After Sept. Form 1040x more:label_form_201040x more:taxes 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Form 1040x more:label_form_201040x more:taxes Election not to claim the allowance. Form 1040x more:label_form_201040x more:taxes   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Form 1040x more:label_form_201040x more:taxes New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Form 1040x more:label_form_201040x more:taxes They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Form 1040x more:label_form_201040x more:taxes Area defined. Form 1040x more:label_form_201040x more:taxes   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Form 1040x more:label_form_201040x more:taxes Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Form 1040x more:label_form_201040x more:taxes The allowance is an additional deduction of 30% of the property's depreciable basis. Form 1040x more:label_form_201040x more:taxes To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Form 1040x more:label_form_201040x more:taxes See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Form 1040x more:label_form_201040x more:taxes The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Form 1040x more:label_form_201040x more:taxes There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Form 1040x more:label_form_201040x more:taxes In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Form 1040x more:label_form_201040x more:taxes You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Form 1040x more:label_form_201040x more:taxes Qualified property is eligible for only one special depreciation allowance. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Form 1040x more:label_form_201040x more:taxes You did not elect to claim a section 179 deduction. Form 1040x more:label_form_201040x more:taxes You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Form 1040x more:label_form_201040x more:taxes You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Form 1040x more:label_form_201040x more:taxes (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Form 1040x more:label_form_201040x more:taxes You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Form 1040x more:label_form_201040x more:taxes You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Form 1040x more:label_form_201040x more:taxes Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Form 1040x more:label_form_201040x more:taxes It is one of the following types of property. Form 1040x more:label_form_201040x more:taxes Used property depreciated under MACRS with a recovery period of 20 years or less. Form 1040x more:label_form_201040x more:taxes See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Form 1040x more:label_form_201040x more:taxes Used water utility property. Form 1040x more:label_form_201040x more:taxes See 25-year property on page 22 in Publication 946. Form 1040x more:label_form_201040x more:taxes Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Form 1040x more:label_form_201040x more:taxes (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Form 1040x more:label_form_201040x more:taxes ) Certain nonresidential real property and residential rental property (defined later). Form 1040x more:label_form_201040x more:taxes It meets the following tests (explained later under Tests to be met). Form 1040x more:label_form_201040x more:taxes Acquisition date test. Form 1040x more:label_form_201040x more:taxes Placed in service date test. Form 1040x more:label_form_201040x more:taxes Substantial use test. Form 1040x more:label_form_201040x more:taxes Original use test. Form 1040x more:label_form_201040x more:taxes It is not excepted property (explained later under Excepted property). Form 1040x more:label_form_201040x more:taxes Nonresidential real property and residential rental property. Form 1040x more:label_form_201040x more:taxes   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Form 1040x more:label_form_201040x more:taxes Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Form 1040x more:label_form_201040x more:taxes   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Form 1040x more:label_form_201040x more:taxes Otherwise, the property is considered damaged real property. Form 1040x more:label_form_201040x more:taxes For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Form 1040x more:label_form_201040x more:taxes Tests to be met. Form 1040x more:label_form_201040x more:taxes   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Form 1040x more:label_form_201040x more:taxes Acquisition date test. Form 1040x more:label_form_201040x more:taxes   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Form 1040x more:label_form_201040x more:taxes   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Form 1040x more:label_form_201040x more:taxes   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Form 1040x more:label_form_201040x more:taxes Placed in service date test. Form 1040x more:label_form_201040x more:taxes   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Form 1040x more:label_form_201040x more:taxes   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Form 1040x more:label_form_201040x more:taxes Substantial use test. Form 1040x more:label_form_201040x more:taxes   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Form 1040x more:label_form_201040x more:taxes Original use test. Form 1040x more:label_form_201040x more:taxes   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Form 1040x more:label_form_201040x more:taxes   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Form 1040x more:label_form_201040x more:taxes Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Form 1040x more:label_form_201040x more:taxes Excepted property. Form 1040x more:label_form_201040x more:taxes   The following property does not qualify for the special Liberty Zone depreciation allowance. Form 1040x more:label_form_201040x more:taxes Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Form 1040x more:label_form_201040x more:taxes Property required to be depreciated using ADS. Form 1040x more:label_form_201040x more:taxes This includes listed property used 50% or less in a qualified business use. Form 1040x more:label_form_201040x more:taxes Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Form 1040x more:label_form_201040x more:taxes Example. Form 1040x more:label_form_201040x more:taxes In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Form 1040x more:label_form_201040x more:taxes New office furniture with a MACRS recovery period of 7 years. Form 1040x more:label_form_201040x more:taxes A used computer with a MACRS recovery period of 5 years. Form 1040x more:label_form_201040x more:taxes The computer had not previously been used within the Liberty Zone. Form 1040x more:label_form_201040x more:taxes Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Form 1040x more:label_form_201040x more:taxes Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Form 1040x more:label_form_201040x more:taxes Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Form 1040x more:label_form_201040x more:taxes If you make this election for any property, it applies to all property in the same property class placed in service during the year. Form 1040x more:label_form_201040x more:taxes To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Form 1040x more:label_form_201040x more:taxes When to make the election. Form 1040x more:label_form_201040x more:taxes   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Form 1040x more:label_form_201040x more:taxes   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Form 1040x more:label_form_201040x more:taxes Attach the election statement to the amended return. Form 1040x more:label_form_201040x more:taxes At the top of the election statement, write “Filed pursuant to section 301. Form 1040x more:label_form_201040x more:taxes 9100–2. Form 1040x more:label_form_201040x more:taxes ” Revoking an election. Form 1040x more:label_form_201040x more:taxes   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Form 1040x more:label_form_201040x more:taxes A request to revoke the election is subject to a user fee. Form 1040x more:label_form_201040x more:taxes Returns filed before June 1, 2002. Form 1040x more:label_form_201040x more:taxes   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Form 1040x more:label_form_201040x more:taxes Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Form 1040x more:label_form_201040x more:taxes For tax years beginning in 2000, that limit was $20,000. Form 1040x more:label_form_201040x more:taxes For tax years beginning in 2001 and 2002, that limit is generally $24,000. Form 1040x more:label_form_201040x more:taxes If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Form 1040x more:label_form_201040x more:taxes Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Form 1040x more:label_form_201040x more:taxes The increase is the smaller of the following amounts. Form 1040x more:label_form_201040x more:taxes $35,000. Form 1040x more:label_form_201040x more:taxes The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Form 1040x more:label_form_201040x more:taxes If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Form 1040x more:label_form_201040x more:taxes Qualified property. Form 1040x more:label_form_201040x more:taxes   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Form 1040x more:label_form_201040x more:taxes Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Form 1040x more:label_form_201040x more:taxes Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Form 1040x more:label_form_201040x more:taxes For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Form 1040x more:label_form_201040x more:taxes Example 1. Form 1040x more:label_form_201040x more:taxes In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Form 1040x more:label_form_201040x more:taxes Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Form 1040x more:label_form_201040x more:taxes Example 2. Form 1040x more:label_form_201040x more:taxes In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Form 1040x more:label_form_201040x more:taxes Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Form 1040x more:label_form_201040x more:taxes Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Form 1040x more:label_form_201040x more:taxes However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Form 1040x more:label_form_201040x more:taxes Example. Form 1040x more:label_form_201040x more:taxes In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Form 1040x more:label_form_201040x more:taxes Your increased dollar limit is $59,000 ($35,000 + $24,000). Form 1040x more:label_form_201040x more:taxes Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Form 1040x more:label_form_201040x more:taxes Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Form 1040x more:label_form_201040x more:taxes Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes This rule applies to returns for the following years. Form 1040x more:label_form_201040x more:taxes 2000 fiscal years that end after September 10, 2001. Form 1040x more:label_form_201040x more:taxes 2001 calendar and fiscal years. Form 1040x more:label_form_201040x more:taxes On the amended return, write “Filed Pursuant to Rev. Form 1040x more:label_form_201040x more:taxes Proc. Form 1040x more:label_form_201040x more:taxes 2002–33. Form 1040x more:label_form_201040x more:taxes ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Form 1040x more:label_form_201040x more:taxes This means that it is depreciated over a recovery period of 5 years. Form 1040x more:label_form_201040x more:taxes For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Form 1040x more:label_form_201040x more:taxes The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Form 1040x more:label_form_201040x more:taxes Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Form 1040x more:label_form_201040x more:taxes Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Form 1040x more:label_form_201040x more:taxes Your 2001 calendar or fiscal year return. Form 1040x more:label_form_201040x more:taxes On the amended return, write “Filed Pursuant to Rev. Form 1040x more:label_form_201040x more:taxes Proc. Form 1040x more:label_form_201040x more:taxes 2002–33. Form 1040x more:label_form_201040x more:taxes ” Table 2. Form 1040x more:label_form_201040x more:taxes Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Form 1040x more:label_form_201040x more:taxes See the text for definitions and examples. Form 1040x more:label_form_201040x more:taxes Do not rely on this chart alone. Form 1040x more:label_form_201040x more:taxes IF you want to. Form 1040x more:label_form_201040x more:taxes . Form 1040x more:label_form_201040x more:taxes . Form 1040x more:label_form_201040x more:taxes THEN you. Form 1040x more:label_form_201040x more:taxes . Form 1040x more:label_form_201040x more:taxes . Form 1040x more:label_form_201040x more:taxes BY. Form 1040x more:label_form_201040x more:taxes . Form 1040x more:label_form_201040x more:taxes . Form 1040x more:label_form_201040x more:taxes claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Form 1040x more:label_form_201040x more:taxes deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Form 1040x more:label_form_201040x more:taxes 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Form 1040x more:label_form_201040x more:taxes Prev  Up  Next   Home   More Online Publications