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Free 2012 Tax Forms

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Free 2012 Tax Forms

Free 2012 tax forms 2. Free 2012 tax forms   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. Free 2012 tax forms Amount realized on a nonrecourse debt. Free 2012 tax forms If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Free 2012 tax forms The foreclosure or repossession is treated as a sale from which you may realize gain or loss. Free 2012 tax forms This is true even if you voluntarily return the property to the lender. Free 2012 tax forms If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. Free 2012 tax forms You must report this income on your return unless certain exceptions or exclusions apply. Free 2012 tax forms See chapter 1 for more details. Free 2012 tax forms Borrower's gain or loss. Free 2012 tax forms    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. Free 2012 tax forms The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). Free 2012 tax forms The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). Free 2012 tax forms For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. Free 2012 tax forms You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. Free 2012 tax forms Amount realized and ordinary income on a recourse debt. Free 2012 tax forms    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. Free 2012 tax forms The amount realized also includes any proceeds you received from the foreclosure sale. Free 2012 tax forms If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. Free 2012 tax forms You must report this income on your return unless certain exceptions or exclusions apply. Free 2012 tax forms See chapter 1 for more details. Free 2012 tax forms       Example 1. Free 2012 tax forms Tara bought a new car for $15,000. Free 2012 tax forms She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Free 2012 tax forms Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. Free 2012 tax forms On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Free 2012 tax forms The balance due after taking into account the payments Tara made was $10,000. Free 2012 tax forms The FMV of the car when it was repossessed was $9,000. Free 2012 tax forms On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. Free 2012 tax forms In this case, the amount Tara realizes is $9,000. Free 2012 tax forms This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. Free 2012 tax forms Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. Free 2012 tax forms She has a $6,000 nondeductible loss. Free 2012 tax forms After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). Free 2012 tax forms Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. Free 2012 tax forms Example 2. Free 2012 tax forms Lili paid $200,000 for her home. Free 2012 tax forms She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Free 2012 tax forms Lili is personally liable for the mortgage loan and the house secures the loan. Free 2012 tax forms In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. Free 2012 tax forms When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Free 2012 tax forms At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). Free 2012 tax forms She remained personally liable for the $8,000 balance. Free 2012 tax forms In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. Free 2012 tax forms The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). Free 2012 tax forms She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. Free 2012 tax forms Lili must also determine her gain or loss from the foreclosure. Free 2012 tax forms In this case, the amount that she realizes is $170,000. Free 2012 tax forms This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. Free 2012 tax forms Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. Free 2012 tax forms She has a $5,000 nondeductible loss. Free 2012 tax forms Table 1-1. Free 2012 tax forms Worksheet for Foreclosures and Repossessions Part 1. Free 2012 tax forms Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Free 2012 tax forms Otherwise, go to Part 2. Free 2012 tax forms 1. Free 2012 tax forms Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. Free 2012 tax forms Enter the fair market value of the transferred property   3. Free 2012 tax forms Ordinary income from the cancellation of debt upon foreclosure or repossession. Free 2012 tax forms * Subtract line 2 from line 1. Free 2012 tax forms If less than zero, enter zero. Free 2012 tax forms Next, go to Part 2   Part 2. Free 2012 tax forms Gain or loss from foreclosure or repossession. Free 2012 tax forms   4. Free 2012 tax forms Enter the smaller of line 1 or line 2. Free 2012 tax forms If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. Free 2012 tax forms Enter any proceeds you received from the foreclosure sale   6. Free 2012 tax forms Add line 4 and line 5   7. Free 2012 tax forms Enter the adjusted basis of the transferred property   8. Free 2012 tax forms Gain or loss from foreclosure or repossession. Free 2012 tax forms Subtract line 7 from line 6   * The income may not be taxable. Free 2012 tax forms See chapter 1 for more details. Free 2012 tax forms Amount realized on a nonrecourse debt. Free 2012 tax forms    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. Free 2012 tax forms This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. Free 2012 tax forms Example 1. Free 2012 tax forms Tara bought a new car for $15,000. Free 2012 tax forms She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Free 2012 tax forms Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. Free 2012 tax forms On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Free 2012 tax forms The balance due after taking into account the payments Tara made was $10,000. Free 2012 tax forms The FMV of the car when it was repossessed was $9,000. Free 2012 tax forms The amount Tara realized on the repossession is $10,000. Free 2012 tax forms That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. Free 2012 tax forms Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. Free 2012 tax forms Tara has a $5,000 nondeductible loss. Free 2012 tax forms Example 2. Free 2012 tax forms Lili paid $200,000 for her home. Free 2012 tax forms She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Free 2012 tax forms She is not personally liable for the loan, but grants the bank a mortgage. Free 2012 tax forms The bank foreclosed on the mortgage because Lili stopped making payments. Free 2012 tax forms When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Free 2012 tax forms The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. Free 2012 tax forms She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. Free 2012 tax forms Lili has a $5,000 realized gain. Free 2012 tax forms See Publication 523 to figure and report any taxable amount. Free 2012 tax forms Forms 1099-A and 1099-C. Free 2012 tax forms    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. Free 2012 tax forms However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. Free 2012 tax forms The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free 2012 tax forms For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Free 2012 tax forms Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Consumer Protection Unit
123 State Capitol
200 W. 24th St.
Cheyenne, WY 82002

Phone Number: 307-777-7841

TTY: 307-777-5351

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Audit

Website: Department of Audit

Address: Department of Audit
Division of Banking
122 W. 25th St.
Herschler Building, 3rd Floor, East
Cheyenne, WY 82002

Phone Number: 307-777-7797

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Affairs Section
106 E. 6th Ave.
Cheyenne, WY 82002

Phone Number: 307-777-7401

Toll-free: 1-800-438-5768 (WY)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Secretary of State

Website: Office of the Secretary of State

Address: Office of the Secretary of State
Compliance Division
State Capitol Building
200 W. 24th St.
Cheyenne, WY 82002-0020

Phone Number: 307-777-7370

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
2515 Warren Ave., Suite 300
Cheyenne, WY 82002

Phone Number: 307-777-7427

Toll-free: 1-888-570-9905 (WY)

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The Free 2012 Tax Forms

Free 2012 tax forms Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Free 2012 tax forms Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Free 2012 tax forms However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Free 2012 tax forms Even then, the deductible amount of these types of expenses may be limited. Free 2012 tax forms Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Free 2012 tax forms To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Free 2012 tax forms Additional tests for employee use. Free 2012 tax forms   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Free 2012 tax forms You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Free 2012 tax forms If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Free 2012 tax forms Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Free 2012 tax forms The area used for business can be a room or other separately identifiable space. Free 2012 tax forms The space does not need to be marked off by a permanent partition. Free 2012 tax forms You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Free 2012 tax forms Example. Free 2012 tax forms You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Free 2012 tax forms Your family also uses the den for recreation. Free 2012 tax forms The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Free 2012 tax forms Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Free 2012 tax forms You use part of your home for the storage of inventory or product samples (discussed next). Free 2012 tax forms You use part of your home as a daycare facility, discussed later under Daycare Facility . Free 2012 tax forms Note. Free 2012 tax forms With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Free 2012 tax forms Storage of inventory or product samples. Free 2012 tax forms    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Free 2012 tax forms However, you must meet all the following tests. Free 2012 tax forms You sell products at wholesale or retail as your trade or business. Free 2012 tax forms You keep the inventory or product samples in your home for use in your trade or business. Free 2012 tax forms Your home is the only fixed location of your trade or business. Free 2012 tax forms You use the storage space on a regular basis. Free 2012 tax forms The space you use is a separately identifiable space suitable for storage. Free 2012 tax forms Example. Free 2012 tax forms Your home is the only fixed location of your business of selling mechanics' tools at retail. Free 2012 tax forms You regularly use half of your basement for storage of inventory and product samples. Free 2012 tax forms You sometimes use the area for personal purposes. Free 2012 tax forms The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Free 2012 tax forms Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Free 2012 tax forms Incidental or occasional business use is not regular use. Free 2012 tax forms You must consider all facts and circumstances in determining whether your use is on a regular basis. Free 2012 tax forms Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Free 2012 tax forms If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Free 2012 tax forms Example. Free 2012 tax forms You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Free 2012 tax forms You do not make investments as a broker or dealer. Free 2012 tax forms So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Free 2012 tax forms Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Free 2012 tax forms To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Free 2012 tax forms To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Free 2012 tax forms Your home office will qualify as your principal place of business if you meet the following requirements. Free 2012 tax forms You use it exclusively and regularly for administrative or management activities of your trade or business. Free 2012 tax forms You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Free 2012 tax forms If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Free 2012 tax forms However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Free 2012 tax forms Administrative or management activities. Free 2012 tax forms   There are many activities that are administrative or managerial in nature. Free 2012 tax forms The following are a few examples. Free 2012 tax forms Billing customers, clients, or patients. Free 2012 tax forms Keeping books and records. Free 2012 tax forms Ordering supplies. Free 2012 tax forms Setting up appointments. Free 2012 tax forms Forwarding orders or writing reports. Free 2012 tax forms Administrative or management activities performed at other locations. Free 2012 tax forms   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Free 2012 tax forms You have others conduct your administrative or management activities at locations other than your home. Free 2012 tax forms (For example, another company does your billing from its place of business. Free 2012 tax forms ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Free 2012 tax forms You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Free 2012 tax forms You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Free 2012 tax forms (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Free 2012 tax forms ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Free 2012 tax forms Please click here for the text description of the image. Free 2012 tax forms Can you deduct business use of the home expenses? Example 1. Free 2012 tax forms John is a self-employed plumber. Free 2012 tax forms Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Free 2012 tax forms He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Free 2012 tax forms John writes up estimates and records of work completed at his customers' premises. Free 2012 tax forms He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Free 2012 tax forms John does not do his own billing. Free 2012 tax forms He uses a local bookkeeping service to bill his customers. Free 2012 tax forms John's home office qualifies as his principal place of business for deducting expenses for its use. Free 2012 tax forms He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Free 2012 tax forms His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Free 2012 tax forms He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Free 2012 tax forms Example 2. Free 2012 tax forms Pamela is a self-employed sales representative for several different product lines. Free 2012 tax forms She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Free 2012 tax forms She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Free 2012 tax forms Pamela's business is selling products to customers at various locations throughout her territory. Free 2012 tax forms To make these sales, she regularly visits customers to explain the available products and take orders. Free 2012 tax forms Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Free 2012 tax forms She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Free 2012 tax forms The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Free 2012 tax forms She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Free 2012 tax forms Example 3. Free 2012 tax forms Paul is a self-employed anesthesiologist. Free 2012 tax forms He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Free 2012 tax forms One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Free 2012 tax forms Paul very rarely uses the office the hospital provides. Free 2012 tax forms He uses a room in his home that he has converted to an office. Free 2012 tax forms He uses this room exclusively and regularly to conduct all the following activities. Free 2012 tax forms Contacting patients, surgeons, and hospitals regarding scheduling. Free 2012 tax forms Preparing for treatments and presentations. Free 2012 tax forms Maintaining billing records and patient logs. Free 2012 tax forms Satisfying continuing medical education requirements. Free 2012 tax forms Reading medical journals and books. Free 2012 tax forms Paul's home office qualifies as his principal place of business for deducting expenses for its use. Free 2012 tax forms He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Free 2012 tax forms His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Free 2012 tax forms His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Free 2012 tax forms He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Free 2012 tax forms Example 4. Free 2012 tax forms Kathleen is employed as a teacher. Free 2012 tax forms She is required to teach and meet with students at the school and to grade papers and tests. Free 2012 tax forms The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Free 2012 tax forms The school does not require her to work at home. Free 2012 tax forms Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Free 2012 tax forms She uses this home office exclusively and regularly for the administrative duties of her teaching job. Free 2012 tax forms Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Free 2012 tax forms Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Free 2012 tax forms More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Free 2012 tax forms Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Free 2012 tax forms You must use the home office exclusively and regularly for one or more of the following purposes. Free 2012 tax forms As the principal place of business for one or more of your trades or businesses. Free 2012 tax forms As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Free 2012 tax forms If your home office is a separate structure, in connection with one or more of your trades or businesses. Free 2012 tax forms You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Free 2012 tax forms e. Free 2012 tax forms , personal) activities. Free 2012 tax forms If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Free 2012 tax forms See Rental to employer , later, if you rent part of your home to your employer. Free 2012 tax forms Example. Free 2012 tax forms Tracy White is employed as a teacher. Free 2012 tax forms Her principal place of work is the school, which provides her office space to do her school work. Free 2012 tax forms She also has a mail order jewelry business. Free 2012 tax forms All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Free 2012 tax forms If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Free 2012 tax forms If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Free 2012 tax forms As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Free 2012 tax forms She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Free 2012 tax forms Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Free 2012 tax forms You physically meet with patients, clients, or customers on your premises. Free 2012 tax forms Their use of your home is substantial and integral to the conduct of your business. Free 2012 tax forms Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Free 2012 tax forms Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Free 2012 tax forms The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Free 2012 tax forms Example. Free 2012 tax forms June Quill, a self-employed attorney, works 3 days a week in her city office. Free 2012 tax forms She works 2 days a week in her home office used only for business. Free 2012 tax forms She regularly meets clients there. Free 2012 tax forms Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Free 2012 tax forms Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Free 2012 tax forms The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Free 2012 tax forms Example. Free 2012 tax forms John Berry operates a floral shop in town. Free 2012 tax forms He grows the plants for his shop in a greenhouse behind his home. Free 2012 tax forms He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Free 2012 tax forms Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Free 2012 tax forms When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Free 2012 tax forms Electing to use the simplified method. Free 2012 tax forms   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Free 2012 tax forms You choose whether or not to figure your deduction using the simplified method each taxable year. Free 2012 tax forms See Using the Simplified Method , later. Free 2012 tax forms Rental to employer. Free 2012 tax forms   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Free 2012 tax forms You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Free 2012 tax forms However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Free 2012 tax forms Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Free 2012 tax forms You will also need to figure the percentage of your home used for business and the limit on the deduction. Free 2012 tax forms If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Free 2012 tax forms If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Free 2012 tax forms Part-year use. Free 2012 tax forms   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Free 2012 tax forms For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Free 2012 tax forms Expenses related to tax-exempt income. Free 2012 tax forms   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Free 2012 tax forms However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Free 2012 tax forms No deduction is allowed for other expenses related to the tax-exempt allowance. Free 2012 tax forms   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Free 2012 tax forms Actual Expenses You must divide the expenses of operating your home between personal and business use. Free 2012 tax forms The part of a home operating expense you can use to figure your deduction depends on both of the following. Free 2012 tax forms Whether the expense is direct, indirect, or unrelated. Free 2012 tax forms The percentage of your home used for business. Free 2012 tax forms Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Free 2012 tax forms Table 1. Free 2012 tax forms Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Free 2012 tax forms Deductible in full. Free 2012 tax forms *   Examples:  Painting or repairs  only in the area  used for business. Free 2012 tax forms Exception: May be only partially  deductible in a daycare facility. Free 2012 tax forms See Daycare Facility , later. Free 2012 tax forms Indirect Expenses for  keeping up and running your  entire home. Free 2012 tax forms Deductible based on the percentage of your home used for business. Free 2012 tax forms *   Examples:  Insurance, utilities, and  general repairs. Free 2012 tax forms   Unrelated Expenses only for  the parts of your  home not used  for business. Free 2012 tax forms Not deductible. Free 2012 tax forms   Examples:  Lawn care or painting  a room not used  for business. Free 2012 tax forms   *Subject to the deduction limit, discussed later. Free 2012 tax forms Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Free 2012 tax forms Certain expenses are deductible whether or not you use your home for business. Free 2012 tax forms If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Free 2012 tax forms These expenses include the following. Free 2012 tax forms Real estate taxes. Free 2012 tax forms Qualified mortgage insurance premiums. Free 2012 tax forms Deductible mortgage interest. Free 2012 tax forms Casualty losses. Free 2012 tax forms Other expenses are deductible only if you use your home for business. Free 2012 tax forms You can use the business percentage of these expenses to figure your total business use of the home deduction. Free 2012 tax forms These expenses generally include (but are not limited to) the following. Free 2012 tax forms Depreciation (covered under Depreciating Your Home , later). Free 2012 tax forms Insurance. Free 2012 tax forms Rent paid for the use of property you do not own but use in your trade or business. Free 2012 tax forms Repairs. Free 2012 tax forms Security system. Free 2012 tax forms Utilities and services. Free 2012 tax forms Real estate taxes. Free 2012 tax forms   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Free 2012 tax forms   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Free 2012 tax forms Deductible mortgage interest. Free 2012 tax forms   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Free 2012 tax forms You can include interest on a second mortgage in this computation. Free 2012 tax forms If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Free 2012 tax forms For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Free 2012 tax forms Qualified mortgage insurance premiums. Free 2012 tax forms   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Free 2012 tax forms You can include premiums for insurance on a second mortgage in this computation. Free 2012 tax forms If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Free 2012 tax forms For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Free 2012 tax forms Casualty losses. Free 2012 tax forms    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Free 2012 tax forms A direct expense is the loss on the portion of the property you use only in your business. Free 2012 tax forms Use the entire loss to figure the business use of the home deduction. Free 2012 tax forms An indirect expense is the loss on property you use for both business and personal purposes. Free 2012 tax forms Use only the business portion to figure the deduction. Free 2012 tax forms An unrelated expense is the loss on property you do not use in your business. Free 2012 tax forms Do not use any of the loss to figure the deduction. Free 2012 tax forms Example. Free 2012 tax forms You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Free 2012 tax forms A storm damages your roof. Free 2012 tax forms This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Free 2012 tax forms You would complete Form 4684, Casualties and Thefts, to report your loss. Free 2012 tax forms You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Free 2012 tax forms Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Free 2012 tax forms Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Free 2012 tax forms Forms and worksheets to use. Free 2012 tax forms   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Free 2012 tax forms If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Free 2012 tax forms You will also need to get Form 4684. Free 2012 tax forms More information. Free 2012 tax forms   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Free 2012 tax forms Insurance. Free 2012 tax forms   You can deduct the cost of insurance that covers the business part of your home. Free 2012 tax forms However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Free 2012 tax forms You can deduct the business percentage of the part that applies to the following year in that year. Free 2012 tax forms Rent. Free 2012 tax forms   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Free 2012 tax forms To figure your deduction, multiply your rent payments by the percentage of your home used for business. Free 2012 tax forms   If you own your home, you cannot deduct the fair rental value of your home. Free 2012 tax forms However, see Depreciating Your Home , later. Free 2012 tax forms Repairs. Free 2012 tax forms   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Free 2012 tax forms For example, a furnace repair benefits the entire home. Free 2012 tax forms If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Free 2012 tax forms   Repairs keep your home in good working order over its useful life. Free 2012 tax forms Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Free 2012 tax forms However, repairs are sometimes treated as a permanent improvement and are not deductible. Free 2012 tax forms See Permanent improvements , later, under Depreciating Your Home. Free 2012 tax forms Security system. Free 2012 tax forms   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Free 2012 tax forms You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Free 2012 tax forms Utilities and services. Free 2012 tax forms   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Free 2012 tax forms However, if you use part of your home for business, you can deduct the business part of these expenses. Free 2012 tax forms Generally, the business percentage for utilities is the same as the percentage of your home used for business. Free 2012 tax forms Telephone. Free 2012 tax forms   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Free 2012 tax forms e. Free 2012 tax forms , landline) is a nondeductible personal expense. Free 2012 tax forms However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Free 2012 tax forms Do not include these expenses as a cost of using your home for business. Free 2012 tax forms Deduct these charges separately on the appropriate form or schedule. Free 2012 tax forms For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Free 2012 tax forms Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Free 2012 tax forms Depreciation is an allowance for the wear and tear on the part of your home used for business. Free 2012 tax forms You cannot depreciate the cost or value of the land. Free 2012 tax forms You recover its cost when you sell or otherwise dispose of the property. Free 2012 tax forms Before you figure your depreciation deduction, you need to know the following information. Free 2012 tax forms The month and year you started using your home for business. Free 2012 tax forms The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Free 2012 tax forms The cost of any improvements before and after you began using the property for business. Free 2012 tax forms The percentage of your home used for business. Free 2012 tax forms See Business Percentage , later. Free 2012 tax forms Adjusted basis defined. Free 2012 tax forms   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Free 2012 tax forms For a discussion of adjusted basis, see Publication 551. Free 2012 tax forms Permanent improvements. Free 2012 tax forms   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Free 2012 tax forms Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Free 2012 tax forms    You must carefully distinguish between repairs and improvements. Free 2012 tax forms See Repairs , earlier, under Actual Expenses. Free 2012 tax forms You also must keep accurate records of these expenses. Free 2012 tax forms These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Free 2012 tax forms However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Free 2012 tax forms Example. Free 2012 tax forms You buy an older home and fix up two rooms as a beauty salon. Free 2012 tax forms You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Free 2012 tax forms Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Free 2012 tax forms However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Free 2012 tax forms You cannot deduct any portion of it as a repair expense. Free 2012 tax forms Adjusting for depreciation deducted in earlier years. Free 2012 tax forms   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Free 2012 tax forms If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Free 2012 tax forms If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Free 2012 tax forms   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Free 2012 tax forms   If you deducted the incorrect amount of depreciation, see Publication 946. Free 2012 tax forms Fair market value defined. Free 2012 tax forms   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Free 2012 tax forms Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Free 2012 tax forms Figuring the depreciation deduction for the current year. Free 2012 tax forms   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Free 2012 tax forms   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Free 2012 tax forms Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Free 2012 tax forms For more information on MACRS and other methods of depreciation, see Publication 946. Free 2012 tax forms   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Free 2012 tax forms The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Free 2012 tax forms The adjusted basis of your home (excluding land) on the date you began using your home for business. Free 2012 tax forms The fair market value of your home (excluding land) on the date you began using your home for business. Free 2012 tax forms Depreciation table. Free 2012 tax forms   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Free 2012 tax forms Table 2. Free 2012 tax forms MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Free 2012 tax forms 461% 2 2. Free 2012 tax forms 247% 3 2. Free 2012 tax forms 033% 4 1. Free 2012 tax forms 819% 5 1. Free 2012 tax forms 605% 6 1. Free 2012 tax forms 391% 7 1. Free 2012 tax forms 177% 8 0. Free 2012 tax forms 963% 9 0. Free 2012 tax forms 749% 10 0. Free 2012 tax forms 535% 11 0. Free 2012 tax forms 321% 12 0. Free 2012 tax forms 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Free 2012 tax forms See Publication 946 for the percentages for the remaining tax years of the recovery period. Free 2012 tax forms Example. Free 2012 tax forms In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Free 2012 tax forms This room is 8% of the square footage of his home. Free 2012 tax forms He bought the home in 2003 for $125,000. Free 2012 tax forms He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Free 2012 tax forms In May, the house had a fair market value of $165,000. Free 2012 tax forms He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Free 2012 tax forms The result is $9,200, his depreciable basis for the business part of the house. Free 2012 tax forms George files his return based on the calendar year. Free 2012 tax forms May is the 5th month of his tax year. Free 2012 tax forms He multiplies his depreciable basis of $9,200 by 1. Free 2012 tax forms 605% (. Free 2012 tax forms 01605), the percentage from the table for the 5th month. Free 2012 tax forms His depreciation deduction is $147. Free 2012 tax forms 66. Free 2012 tax forms Depreciating permanent improvements. Free 2012 tax forms   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Free 2012 tax forms Depreciate these costs as part of the cost of your home as explained earlier. Free 2012 tax forms The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Free 2012 tax forms Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Free 2012 tax forms For improvements made this year, the recovery period is 39 years. Free 2012 tax forms For the percentage to use for the first year, see Table 2, earlier. Free 2012 tax forms For more information on recovery periods, see Publication 946. Free 2012 tax forms Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Free 2012 tax forms Use the resulting percentage to figure the business part of the expenses for operating your entire home. Free 2012 tax forms You can use any reasonable method to determine the business percentage. Free 2012 tax forms The following are two commonly used methods for figuring the percentage. Free 2012 tax forms Divide the area (length multiplied by the width) used for business by the total area of your home. Free 2012 tax forms If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Free 2012 tax forms Example 1. Free 2012 tax forms Your office is 240 square feet (12 feet × 20 feet). Free 2012 tax forms Your home is 1,200 square feet. Free 2012 tax forms Your office is 20% (240 ÷ 1,200) of the total area of your home. Free 2012 tax forms Your business percentage is 20%. Free 2012 tax forms Example 2. Free 2012 tax forms You use one room in your home for business. Free 2012 tax forms Your home has 10 rooms, all about equal size. Free 2012 tax forms Your office is 10% (1 ÷ 10) of the total area of your home. Free 2012 tax forms Your business percentage is 10%. Free 2012 tax forms Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Free 2012 tax forms Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Free 2012 tax forms If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Free 2012 tax forms Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Free 2012 tax forms The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Free 2012 tax forms These expenses are discussed in detail under Actual Expenses , earlier. Free 2012 tax forms The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Free 2012 tax forms If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Free 2012 tax forms Carryover of unallowed expenses. Free 2012 tax forms   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Free 2012 tax forms They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Free 2012 tax forms Figuring the deduction limit and carryover. Free 2012 tax forms   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Free 2012 tax forms If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Free 2012 tax forms Example. Free 2012 tax forms You meet the requirements for deducting expenses for the business use of your home. Free 2012 tax forms You use 20% of your home for business. Free 2012 tax forms In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Free 2012 tax forms    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Free 2012 tax forms You also can deduct all of your business expenses not related to the use of your home ($2,000). Free 2012 tax forms Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Free 2012 tax forms Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Free 2012 tax forms You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Free 2012 tax forms More than one place of business. Free 2012 tax forms   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Free 2012 tax forms In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Free 2012 tax forms If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Free 2012 tax forms For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free 2012 tax forms Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Free 2012 tax forms In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Free 2012 tax forms The area you use to figure your deduction is limited to 300 square feet. Free 2012 tax forms See Simplified Amount , later, for information about figuring the amount of the deduction. Free 2012 tax forms For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Free 2012 tax forms R. Free 2012 tax forms B. Free 2012 tax forms 478, available at www. Free 2012 tax forms irs. Free 2012 tax forms gov/irb/2013-06_IRB/ar09. Free 2012 tax forms html. Free 2012 tax forms Actual expenses and depreciation of your home. Free 2012 tax forms   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Free 2012 tax forms You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Free 2012 tax forms The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Free 2012 tax forms If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Free 2012 tax forms More information. Free 2012 tax forms   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Free 2012 tax forms R. Free 2012 tax forms B. Free 2012 tax forms 478, available at www. Free 2012 tax forms irs. Free 2012 tax forms gov/irb/2013-06_IRB/ar09. Free 2012 tax forms html. Free 2012 tax forms See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Free 2012 tax forms Expenses deductible without regard to business use. Free 2012 tax forms   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Free 2012 tax forms These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Free 2012 tax forms See Where To Deduct , later. Free 2012 tax forms If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Free 2012 tax forms No deduction of carryover of actual expenses. Free 2012 tax forms   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Free 2012 tax forms Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Free 2012 tax forms Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Free 2012 tax forms Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Free 2012 tax forms An election for a taxable year, once made, is irrevocable. Free 2012 tax forms A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Free 2012 tax forms Shared use. Free 2012 tax forms   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Free 2012 tax forms More than one qualified business use. Free 2012 tax forms   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Free 2012 tax forms More than one home. Free 2012 tax forms   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Free 2012 tax forms You must figure the deduction for any other home using actual expenses. Free 2012 tax forms Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Free 2012 tax forms To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Free 2012 tax forms The allowable area of your home used in conducting the business. Free 2012 tax forms If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Free 2012 tax forms The gross income from the business use of your home. Free 2012 tax forms The amount of the business expenses that are not related to the use of your home. Free 2012 tax forms If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Free 2012 tax forms To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Free 2012 tax forms Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Free 2012 tax forms See Allowable area and Space used regularly for daycare , later. Free 2012 tax forms Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Free 2012 tax forms If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Free 2012 tax forms See Gross income limitation , later. Free 2012 tax forms Take the smaller of the amounts from (1) and (2). Free 2012 tax forms This is the amount you can deduct for this qualified business use of your home using the simplified method. Free 2012 tax forms If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Free 2012 tax forms If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Free 2012 tax forms Allowable area. Free 2012 tax forms   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Free 2012 tax forms Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Free 2012 tax forms You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Free 2012 tax forms Area used by a qualified joint venture. Free 2012 tax forms   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Free 2012 tax forms Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Free 2012 tax forms Then, each spouse will figure the allowable area separately. Free 2012 tax forms For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Free 2012 tax forms Shared use. Free 2012 tax forms   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Free 2012 tax forms You must allocate the shared space between you and the other person in a reasonable manner. Free 2012 tax forms Example. Free 2012 tax forms Kristin and Lindsey are roommates. Free 2012 tax forms Kristin uses 300 square feet of their home for a qualified business use. Free 2012 tax forms Lindsey uses 200 square feet of their home for a separate qualified business use. Free 2012 tax forms The qualified business uses share 100 square feet. Free 2012 tax forms In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Free 2012 tax forms If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Free 2012 tax forms More than one qualified business use. Free 2012 tax forms   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Free 2012 tax forms Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Free 2012 tax forms However, do not allocate more square feet to a qualified business use than you actually use for that business. Free 2012 tax forms Rental use. Free 2012 tax forms   The simplified method does not apply to rental use. Free 2012 tax forms A rental use that qualifies for the deduction must be figured using actual expenses. Free 2012 tax forms If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Free 2012 tax forms You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Free 2012 tax forms Part-year use or area changes. Free 2012 tax forms   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Free 2012 tax forms You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Free 2012 tax forms When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Free 2012 tax forms Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Free 2012 tax forms Example 1. Free 2012 tax forms Andy files his federal income tax return on a calendar year basis. Free 2012 tax forms On July 20, he began using 420 square feet of his home for a qualified business use. Free 2012 tax forms He continued to use the 420 square feet until the end of the year. Free 2012 tax forms His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Free 2012 tax forms Example 2. Free 2012 tax forms Amy files her federal income tax return on a calendar year basis. Free 2012 tax forms On April 20, she began using 100 square feet of her home for a qualified business use. Free 2012 tax forms On August 5, she expanded the area of her qualified use to 330 square feet. Free 2012 tax forms Amy continued to use the 330 square feet until the end of the year. Free 2012 tax forms Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Free 2012 tax forms Gross income limitation. Free 2012 tax forms   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Free 2012 tax forms If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Free 2012 tax forms Business expenses not related to use of the home. Free 2012 tax forms   These expenses relate to the business activity in the home, but not to the use of the home itself. Free 2012 tax forms You can still deduct business expenses that are unrelated to the use of the home. Free 2012 tax forms See Where To Deduct , later. Free 2012 tax forms Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Free 2012 tax forms Space used regularly for daycare. Free 2012 tax forms   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Free 2012 tax forms The reduced rate will equal the prescribed rate times a fraction. Free 2012 tax forms The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Free 2012 tax forms You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Free 2012 tax forms    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Free 2012 tax forms Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Free 2012 tax forms To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Free 2012 tax forms You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Free 2012 tax forms You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Free 2012 tax forms You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Free 2012 tax forms Figuring the deduction. Free 2012 tax forms   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Free 2012 tax forms    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Free 2012 tax forms If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Free 2012 tax forms   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Free 2012 tax forms A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Free 2012 tax forms You do not have to keep records to show the specific hours the area was used for business. Free 2012 tax forms You can use the area occasionally for personal reasons. Free 2012 tax forms However, a room you use only occasionally for business does not qualify for the deduction. Free 2012 tax forms To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Free 2012 tax forms You can compare the hours of business use in a week with the number of hours in a week (168). Free 2012 tax forms Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Free 2012 tax forms If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Free 2012 tax forms Example 1. Free 2012 tax forms Mary Lake used her basement to operate a daycare business for children. Free 2012 tax forms She figures the business percentage of the basement as follows. Free 2012 tax forms Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Free 2012 tax forms During the other 12 hours a day, the family could use the basement. Free 2012 tax forms She figures the percentage of time the basement was used for daycare as follows. Free 2012 tax forms Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Free 2012 tax forms 25%           Mary can deduct 34. Free 2012 tax forms 25% of any direct expenses for the basement. Free 2012 tax forms However, because her indirect expenses are for the entire house, she can deduct only 17. Free 2012 tax forms 13% of the indirect expenses. Free 2012 tax forms She figures the percentage for her indirect expenses as follows. Free 2012 tax forms Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Free 2012 tax forms 25% Percentage for indirect expenses 17. Free 2012 tax forms 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Free 2012 tax forms In Part II, Mary figures her deductible expenses. Free 2012 tax forms She uses the following information to complete Part II. Free 2012 tax forms Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Free 2012 tax forms (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Free 2012 tax forms ) The expenses she paid for rent and utilities relate to her entire home. Free 2012 tax forms Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Free 2012 tax forms She shows the total of these expenses on line 22, column (b). Free 2012 tax forms For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Free 2012 tax forms Mary paid $500 to have the basement painted. Free 2012 tax forms The painting is a direct expense. Free 2012 tax forms However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Free 2012 tax forms 25% – line 6). Free 2012 tax forms She enters $171 (34. Free 2012 tax forms 25% × $500) on line 19, column (a). Free 2012 tax forms She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Free 2012 tax forms This is less than her deduction limit (line 15), so she can deduct the entire amount. Free 2012 tax forms She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Free 2012 tax forms She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Free 2012 tax forms Example 2. Free 2012 tax forms Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Free 2012 tax forms Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Free 2012 tax forms Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Free 2012 tax forms The basement and room are 60% of the total area of her home. Free 2012 tax forms In figuring her expenses, 34. Free 2012 tax forms 25% of any direct expenses for the basement and room are deductible. Free 2012 tax forms In addition, 20. Free 2012 tax forms 55% (34. Free 2012 tax forms 25% × 60%) of her indirect expenses are deductible. Free 2012 tax forms Example 3. Free 2012 tax forms Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Free 2012 tax forms She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Free 2012 tax forms During the other 12 hours a day, the family could still use the basement. Free 2012 tax forms She figures the percentage of time the basement was used for business as follows. Free 2012 tax forms Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Free 2012 tax forms 71%           Mary can deduct 35. Free 2012 tax forms 71% of any direct expenses for the basement. Free 2012 tax forms However, because her indirect expenses are for the entire house, she can deduct only 17. Free 2012 tax forms 86% of the indirect expenses. Free 2012 tax forms She figures the percentage for her indirect expenses as follows. Free 2012 tax forms Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Free 2012 tax forms 71% Percentage for indirect expenses 17. Free 2012 tax forms 86% Meals. Free 2012 tax forms   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Free 2012 tax forms Claim it as a separate deduction on your Schedule C (Form 1040). Free 2012 tax forms You can never deduct the cost of food consumed by you or your family. Free 2012 tax forms You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Free 2012 tax forms However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Free 2012 tax forms For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free 2012 tax forms   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Free 2012 tax forms   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Free 2012 tax forms If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Free 2012 tax forms If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Free 2012 tax forms Do not include payments or expenses for your own children if they are eligible for the program. Free 2012 tax forms Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Free 2012 tax forms Standard meal and snack rates. Free 2012 tax forms   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Free 2012 tax forms For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Free 2012 tax forms Family daycare is childcare provided to eligible children in the home of the family daycare provider. Free 2012 tax forms The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Free 2012 tax forms Eligible children are minor children receiving family daycare in the home of the family daycare provider. Free 2012 tax forms Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Free 2012 tax forms Eligible children do not include children who receive daycare services for personal reasons of the provider. Free 2012 tax forms For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Free 2012 tax forms   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Free 2012 tax forms You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Free 2012 tax forms If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Free 2012 tax forms   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Free 2012 tax forms If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Free 2012 tax forms However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Free 2012 tax forms   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Free 2012 tax forms The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Free 2012 tax forms This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Free 2012 tax forms   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Free 2012 tax forms These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Free 2012 tax forms     Table 3. Free 2012 tax forms Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an