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H&r Block Taxes

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H&r Block Taxes

H&r block taxes 8. H&r block taxes   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. H&r block taxes Cash method. H&r block taxes Car and Truck ExpensesOffice in the home. H&r block taxes Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. H&r block taxes InsuranceHow to figure the deduction. H&r block taxes Interest Legal and Professional FeesTax preparation fees. H&r block taxes Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. H&r block taxes Taxi, commuter bus, and limousine. H&r block taxes Baggage and shipping. H&r block taxes Car or truck. H&r block taxes Meals and lodging. H&r block taxes Cleaning. H&r block taxes Telephone. H&r block taxes Tips. H&r block taxes More information. H&r block taxes Business Use of Your HomeExceptions to exclusive use. H&r block taxes Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. H&r block taxes These costs are known as business expenses. H&r block taxes These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. H&r block taxes To be deductible, a business expense must be both ordinary and necessary. H&r block taxes An ordinary expense is one that is common and accepted in your field of business. H&r block taxes A necessary expense is one that is helpful and appropriate for your business. H&r block taxes An expense does not have to be indispensable to be considered necessary. H&r block taxes For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. H&r block taxes If you have an expense that is partly for business and partly personal, separate the personal part from the business part. H&r block taxes The personal part is not deductible. H&r block taxes Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. H&r block taxes Bad Debts If someone owes you money you cannot collect, you have a bad debt. H&r block taxes There are two kinds of bad debts, business bad debts and nonbusiness bad debts. H&r block taxes A business bad debt is generally one that comes from operating your trade or business. H&r block taxes You may be able to deduct business bad debts as an expense on your business tax return. H&r block taxes Business bad debt. H&r block taxes   A business bad debt is a loss from the worthlessness of a debt that was either of the following. H&r block taxes Created or acquired in your business. H&r block taxes Closely related to your business when it became partly or totally worthless. H&r block taxes A debt is closely related to your business if your primary motive for incurring the debt is a business reason. H&r block taxes   Business bad debts are mainly the result of credit sales to customers. H&r block taxes They can also be the result of loans to suppliers, clients, employees, or distributors. H&r block taxes Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. H&r block taxes If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. H&r block taxes    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. H&r block taxes Accrual method. H&r block taxes   If you use an accrual method of accounting, you normally report income as you earn it. H&r block taxes You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. H&r block taxes Cash method. H&r block taxes   If you use the cash method of accounting, you normally report income when you receive payment. H&r block taxes You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. H&r block taxes More information. H&r block taxes   For more information about business bad debts, see chapter 10 in Publication 535. H&r block taxes Nonbusiness bad debts. H&r block taxes   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). H&r block taxes For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. H&r block taxes Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. H&r block taxes You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. H&r block taxes You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. H&r block taxes See Form 8936 and Form 8910 for more information. H&r block taxes Local transportation expenses. H&r block taxes   Local transportation expenses include the ordinary and necessary costs of all the following. H&r block taxes Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. H&r block taxes Tax home is defined later. H&r block taxes Visiting clients or customers. H&r block taxes Going to a business meeting away from your regular workplace. H&r block taxes Getting from your home to a temporary workplace when you have one or more regular places of work. H&r block taxes These temporary workplaces can be either within the area of your tax home or outside that area. H&r block taxes Local business transportation does not include expenses you have while traveling away from home overnight. H&r block taxes Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. H&r block taxes However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. H&r block taxes   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. H&r block taxes It includes the entire city or general area in which your business or work is located. H&r block taxes Example. H&r block taxes You operate a printing business out of rented office space. H&r block taxes You use your van to deliver completed jobs to your customers. H&r block taxes You can deduct the cost of round-trip transportation between your customers and your print shop. H&r block taxes    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. H&r block taxes These costs are personal commuting expenses. H&r block taxes Office in the home. H&r block taxes   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. H&r block taxes For more information, see Business Use of Your Home, later. H&r block taxes Example. H&r block taxes You are a graphics designer. H&r block taxes You operate your business out of your home. H&r block taxes Your home qualifies as your principal place of business. H&r block taxes You occasionally have to drive to your clients to deliver your completed work. H&r block taxes You can deduct the cost of the round-trip transportation between your home and your clients. H&r block taxes Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. H&r block taxes Standard mileage rate. H&r block taxes Actual expenses. H&r block taxes Standard mileage rate. H&r block taxes   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. H&r block taxes For 2013, the standard mileage rate is 56. H&r block taxes 5 cents per mile. H&r block taxes    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. H&r block taxes Choosing the standard mileage rate. H&r block taxes   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. H&r block taxes In later years, you can choose to use either the standard mileage rate or actual expenses. H&r block taxes   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). H&r block taxes Standard mileage rate not allowed. H&r block taxes   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. H&r block taxes Parking fees and tolls. H&r block taxes   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. H&r block taxes (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. H&r block taxes ) Actual expenses. H&r block taxes   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. H&r block taxes    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. H&r block taxes   Actual car expenses include the costs of the following items. H&r block taxes Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. H&r block taxes You can divide your expenses based on the miles driven for each purpose. H&r block taxes Example. H&r block taxes You are the sole proprietor of a flower shop. H&r block taxes You drove your van 20,000 miles during the year. H&r block taxes 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). H&r block taxes You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. H&r block taxes More information. H&r block taxes   For more information about the rules for claiming car and truck expenses, see Publication 463. H&r block taxes Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. H&r block taxes The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. H&r block taxes For details, see chapter 11 in Publication 535. H&r block taxes That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. H&r block taxes Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. H&r block taxes You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. H&r block taxes This method of deducting the cost of business property is called depreciation. H&r block taxes The discussion here is brief. H&r block taxes You will find more information about depreciation in Publication 946. H&r block taxes What property can be depreciated?   You can depreciate property if it meets all the following requirements. H&r block taxes It must be property you own. H&r block taxes It must be used in business or held to produce income. H&r block taxes You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. H&r block taxes It must have a useful life that extends substantially beyond the year it is placed in service. H&r block taxes It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. H&r block taxes You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. H&r block taxes It must not be excepted property. H&r block taxes This includes property placed in service and disposed of in the same year. H&r block taxes Repairs. H&r block taxes    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. H&r block taxes You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. H&r block taxes Depreciation method. H&r block taxes   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). H&r block taxes MACRS is discussed in detail in Publication 946. H&r block taxes Section 179 deduction. H&r block taxes   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. H&r block taxes This deduction is known as the “section 179 deduction. H&r block taxes ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). H&r block taxes See IRC 179(e). H&r block taxes   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. H&r block taxes The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). H&r block taxes Special rules apply to trucks and vans. H&r block taxes For more information, see Publication 946. H&r block taxes It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. H&r block taxes    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. H&r block taxes For more information, see the Instructions for Form 4562 or Publication 946. H&r block taxes Listed property. H&r block taxes   You must follow special rules and recordkeeping requirements when depreciating listed property. H&r block taxes Listed property is any of the following. H&r block taxes Most passenger automobiles. H&r block taxes Most other property used for transportation. H&r block taxes Any property of a type generally used for entertainment, recreation, or amusement. H&r block taxes Certain computers and related peripheral equipment. H&r block taxes   For more information about listed property, see Publication 946. H&r block taxes Form 4562. H&r block taxes   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. H&r block taxes Depreciation on property placed in service during the current tax year. H&r block taxes A section 179 deduction. H&r block taxes Depreciation on any listed property (regardless of when it was placed in service). H&r block taxes    If you have to use Form 4562, you must file Schedule C. H&r block taxes You cannot use Schedule C-EZ. H&r block taxes   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. H&r block taxes The pay may be in cash, property, or services. H&r block taxes To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. H&r block taxes In addition, the pay must meet both the following tests. H&r block taxes The pay must be reasonable. H&r block taxes The pay must be for services performed. H&r block taxes Chapter 2 in Publication 535 explains and defines these requirements. H&r block taxes You cannot deduct your own salary or any personal withdrawals you make from your business. H&r block taxes As a sole proprietor, you are not an employee of the business. H&r block taxes If you had employees during the year, you must use Schedule C. H&r block taxes You cannot use Schedule C-EZ. H&r block taxes Kinds of pay. H&r block taxes   Some of the ways you may provide pay to your employees are listed below. H&r block taxes For an explanation of each of these items, see chapter 2 in Publication 535. H&r block taxes Awards. H&r block taxes Bonuses. H&r block taxes Education expenses. H&r block taxes Fringe benefits (discussed later). H&r block taxes Loans or advances you do not expect the employee to repay if they are for personal services actually performed. H&r block taxes Property you transfer to an employee as payment for services. H&r block taxes Reimbursements for employee business expenses. H&r block taxes Sick pay. H&r block taxes Vacation pay. H&r block taxes Fringe benefits. H&r block taxes   A fringe benefit is a form of pay for the performance of services. H&r block taxes The following are examples of fringe benefits. H&r block taxes Benefits under qualified employee benefit programs. H&r block taxes Meals and lodging. H&r block taxes The use of a car. H&r block taxes Flights on airplanes. H&r block taxes Discounts on property or services. H&r block taxes Memberships in country clubs or other social clubs. H&r block taxes Tickets to entertainment or sporting events. H&r block taxes   Employee benefit programs include the following. H&r block taxes Accident and health plans. H&r block taxes Adoption assistance. H&r block taxes Cafeteria plans. H&r block taxes Dependent care assistance. H&r block taxes Educational assistance. H&r block taxes Group-term life insurance coverage. H&r block taxes Welfare benefit funds. H&r block taxes   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. H&r block taxes For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. H&r block taxes If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. H&r block taxes    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. H&r block taxes For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. H&r block taxes Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. H&r block taxes Fire, theft, flood, or similar insurance. H&r block taxes Credit insurance that covers losses from business bad debts. H&r block taxes Group hospitalization and medical insurance for employees, including long-term care insurance. H&r block taxes Liability insurance. H&r block taxes Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. H&r block taxes Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. H&r block taxes Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. H&r block taxes Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. H&r block taxes Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. H&r block taxes If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. H&r block taxes If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. H&r block taxes Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. H&r block taxes Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. H&r block taxes Nondeductible premiums. H&r block taxes   You cannot deduct premiums on the following kinds of insurance. H&r block taxes Self-insurance reserve funds. H&r block taxes You cannot deduct amounts credited to a reserve set up for self-insurance. H&r block taxes This applies even if you cannot get business insurance coverage for certain business risks. H&r block taxes However, your actual losses may be deductible. H&r block taxes For more information, see Publication 547, Casualties, Disasters, and Thefts. H&r block taxes Loss of earnings. H&r block taxes You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. H&r block taxes However, see item (8) in the previous list. H&r block taxes Certain life insurance and annuities. H&r block taxes For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. H&r block taxes You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. H&r block taxes A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. H&r block taxes For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. H&r block taxes The disallowance applies without regard to whom the policy covers. H&r block taxes Insurance to secure a loan. H&r block taxes If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. H&r block taxes Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. H&r block taxes In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. H&r block taxes Self-employed health insurance deduction. H&r block taxes   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. H&r block taxes How to figure the deduction. H&r block taxes   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. H&r block taxes However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. H&r block taxes You have more than one source of income subject to self-employment tax. H&r block taxes You file Form 2555 or Form 2555-EZ (relating to foreign earned income). H&r block taxes You are using amounts paid for qualified long-term care insurance to figure the deduction. H&r block taxes Prepayment. H&r block taxes   You cannot deduct expenses in advance, even if you pay them in advance. H&r block taxes This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. H&r block taxes Example. H&r block taxes In 2013, you signed a 3-year insurance contract. H&r block taxes Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. H&r block taxes You can deduct in 2014 and 2015 the premium allocable to those years. H&r block taxes More information. H&r block taxes   For more information about deducting insurance, see chapter 6 in Publication 535. H&r block taxes Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. H&r block taxes Interest relates to your business if you use the proceeds of the loan for a business expense. H&r block taxes It does not matter what type of property secures the loan. H&r block taxes You can deduct interest on a debt only if you meet all of the following requirements. H&r block taxes You are legally liable for that debt. H&r block taxes Both you and the lender intend that the debt be repaid. H&r block taxes You and the lender have a true debtor-creditor relationship. H&r block taxes You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. H&r block taxes If a loan is part business and part personal, you must divide the interest between the personal part and the business part. H&r block taxes Example. H&r block taxes In 2013, you paid $600 interest on a car loan. H&r block taxes During 2013, you used the car 60% for business and 40% for personal purposes. H&r block taxes You are claiming actual expenses on the car. H&r block taxes You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. H&r block taxes The remaining interest of $240 is a nondeductible personal expense. H&r block taxes More information. H&r block taxes   For more information about deducting interest, see chapter 4 in Publication 535. H&r block taxes That chapter explains the following items. H&r block taxes Interest you can deduct. H&r block taxes Interest you cannot deduct. H&r block taxes How to allocate interest between personal and business use. H&r block taxes When to deduct interest. H&r block taxes The rules for a below-market interest rate loan. H&r block taxes (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. H&r block taxes ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. H&r block taxes However, you usually cannot deduct legal fees you pay to acquire business assets. H&r block taxes Add them to the basis of the property. H&r block taxes If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. H&r block taxes The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. H&r block taxes For more information, see Publication 529, Miscellaneous Deductions. H&r block taxes Tax preparation fees. H&r block taxes   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. H&r block taxes You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. H&r block taxes   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. H&r block taxes Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. H&r block taxes SEP (Simplified Employee Pension) plans. H&r block taxes SIMPLE (Savings Incentive Match Plan for Employees) plans. H&r block taxes Qualified plans (including Keogh or H. H&r block taxes R. H&r block taxes 10 plans). H&r block taxes SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. H&r block taxes You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. H&r block taxes If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. H&r block taxes You can also deduct trustees' fees if contributions to the plan do not cover them. H&r block taxes Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. H&r block taxes You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. H&r block taxes Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. H&r block taxes These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. H&r block taxes For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). H&r block taxes Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. H&r block taxes Rent Expense Rent is any amount you pay for the use of property you do not own. H&r block taxes In general, you can deduct rent as a business expense only if the rent is for property you use in your business. H&r block taxes If you have or will receive equity in or title to the property, you cannot deduct the rent. H&r block taxes Unreasonable rent. H&r block taxes   You cannot take a rental deduction for unreasonable rents. H&r block taxes Ordinarily, the issue of reasonableness arises only if you and the lessor are related. H&r block taxes Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. H&r block taxes Rent is not unreasonable just because it is figured as a percentage of gross receipts. H&r block taxes   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. H&r block taxes For a list of the other related persons, see section 267 of the Internal Revenue Code. H&r block taxes Rent on your home. H&r block taxes   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. H&r block taxes You must meet the requirements for business use of your home. H&r block taxes For more information, see Business Use of Your Home , later. H&r block taxes Rent paid in advance. H&r block taxes   Generally, rent paid in your business is deductible in the year paid or accrued. H&r block taxes If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. H&r block taxes You can deduct the rest of your payment only over the period to which it applies. H&r block taxes More information. H&r block taxes   For more information about rent, see chapter 3 in Publication 535. H&r block taxes Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. H&r block taxes Income taxes. H&r block taxes   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. H&r block taxes You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. H&r block taxes Do not deduct federal income tax. H&r block taxes Employment taxes. H&r block taxes   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. H&r block taxes Employment taxes are discussed briefly in chapter 1. H&r block taxes You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. H&r block taxes Deduct these payments as taxes. H&r block taxes Self-employment tax. H&r block taxes   You can deduct one-half of your self-employment tax on line 27 of Form 1040. H&r block taxes Self-employment tax is discussed in chapters 1 and 10. H&r block taxes Personal property tax. H&r block taxes   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. H&r block taxes   You can also deduct registration fees for the right to use property within a state or local area. H&r block taxes Example. H&r block taxes May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. H&r block taxes They had to pay $25 for their annual state license tags and $20 for their city registration sticker. H&r block taxes They also paid $235 in city personal property tax on the car, for a total of $280. H&r block taxes They are claiming their actual car expenses. H&r block taxes Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. H&r block taxes Real estate taxes. H&r block taxes   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. H&r block taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. H&r block taxes The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. H&r block taxes   For more information about real estate taxes, see chapter 5 in Publication 535. H&r block taxes That chapter explains special rules for deducting the following items. H&r block taxes Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. H&r block taxes Real estate taxes when you buy or sell property during the year. H&r block taxes Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. H&r block taxes Sales tax. H&r block taxes   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. H&r block taxes If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. H&r block taxes If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. H&r block taxes If the property is depreciable, add the sales tax to the basis for depreciation. H&r block taxes For information on the basis of property, see Publication 551, Basis of Assets. H&r block taxes    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. H&r block taxes Do not include these taxes in gross receipts or sales. H&r block taxes Excise taxes. H&r block taxes   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. H&r block taxes Excise taxes are discussed briefly in chapter 1. H&r block taxes Fuel taxes. H&r block taxes   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. H&r block taxes Do not deduct these taxes as a separate item. H&r block taxes   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. H&r block taxes For more information, see Publication 510, Excise Taxes. H&r block taxes Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. H&r block taxes Table 8-1. H&r block taxes When Are Entertainment Expenses Deductible? (Note. H&r block taxes The following is a summary of the rules for deducting entertainment expenses. H&r block taxes For more details about these rules, see Publication 463. H&r block taxes ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. H&r block taxes Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. H&r block taxes An ordinary expense is one that is common and accepted in your field of business, trade, or profession. H&r block taxes A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. H&r block taxes Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. H&r block taxes   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. H&r block taxes Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. H&r block taxes You cannot deduct expenses that are lavish or extravagant under the circumstances. H&r block taxes You generally can deduct only 50% of your unreimbursed entertainment expenses. H&r block taxes Travel expenses. H&r block taxes   These are the ordinary and necessary expenses of traveling away from home for your business. H&r block taxes You are traveling away from home if both the following conditions are met. H&r block taxes Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. H&r block taxes You need to get sleep or rest to meet the demands of your work while away from home. H&r block taxes Generally, your tax home is your regular place of business, regardless of where you maintain your family home. H&r block taxes It includes the entire city or general area in which your business is located. H&r block taxes See Publication 463 for more information. H&r block taxes   The following is a brief discussion of the expenses you can deduct. H&r block taxes Transportation. H&r block taxes   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. H&r block taxes Taxi, commuter bus, and limousine. H&r block taxes   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. H&r block taxes Baggage and shipping. H&r block taxes   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. H&r block taxes Car or truck. H&r block taxes   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. H&r block taxes You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. H&r block taxes If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. H&r block taxes Meals and lodging. H&r block taxes   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. H&r block taxes In most cases, you can deduct only 50% of your meal expenses. H&r block taxes Cleaning. H&r block taxes   You can deduct the costs of dry cleaning and laundry while on your business trip. H&r block taxes Telephone. H&r block taxes   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. H&r block taxes Tips. H&r block taxes   You can deduct the tips you pay for any expense in this list. H&r block taxes More information. H&r block taxes   For more information about travel expenses, see Publication 463. H&r block taxes Entertainment expenses. H&r block taxes   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. H&r block taxes In most cases, you can deduct only 50% of these expenses. H&r block taxes   The following are examples of entertainment expenses. H&r block taxes Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. H&r block taxes Providing meals, a hotel suite, or a car to business customers or their families. H&r block taxes To be deductible, the expenses must meet the rules listed in Table 8-1. H&r block taxes For details about these rules, see Publication 463. H&r block taxes Reimbursing your employees for expenses. H&r block taxes   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. H&r block taxes The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. H&r block taxes For details, see chapter 11 in Publication 535. H&r block taxes That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. H&r block taxes Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. H&r block taxes Even then, your deduction may be limited. H&r block taxes To qualify to claim expenses for business use of your home, you must meet the following tests. H&r block taxes Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. H&r block taxes Exclusive use. H&r block taxes   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. H&r block taxes The area used for business can be a room or other separately identifiable space. H&r block taxes The space does not need to be marked off by a permanent partition. H&r block taxes   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. H&r block taxes Example. H&r block taxes You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. H&r block taxes Your family also uses the den for recreation. H&r block taxes The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. H&r block taxes Exceptions to exclusive use. H&r block taxes   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. H&r block taxes For the storage of inventory or product samples. H&r block taxes As a daycare facility. H&r block taxes For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). H&r block taxes Regular use. H&r block taxes   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. H&r block taxes You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. H&r block taxes Principal place of business. H&r block taxes   You can have more than one business location, including your home, for a single trade or business. H&r block taxes To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. H&r block taxes To determine your principal place of business, you must consider all the facts and circumstances. H&r block taxes   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. H&r block taxes You use it exclusively and regularly for administrative or management activities of your business. H&r block taxes You have no other fixed location where you conduct substantial administrative or management activities of your business. H&r block taxes   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. H&r block taxes The relative importance of the activities performed at each location. H&r block taxes If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. H&r block taxes   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. H&r block taxes However, for other ways to qualify to deduct home office expenses, see Publication 587. H&r block taxes Deduction limit. H&r block taxes   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. H&r block taxes If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. H&r block taxes   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. H&r block taxes 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)). H&r block taxes 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. H&r block taxes Do not include in (2) above your deduction for one-half of your self-employment tax. H&r block taxes   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. H&r block taxes New simplified method. H&r block taxes    The IRS now provides a simplified method to determine your expenses for business use of your home. H&r block taxes The simplified method is an alternative to calculating and substantiating actual expenses. H&r block taxes In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. H&r block taxes The area you use to figure your deduction is limited to 300 square feet. H&r block taxes For more information, see the Instructions for Schedule C. H&r block taxes More information. H&r block taxes   For more information on deducting expenses for the business use of your home, see Publication 587. H&r block taxes Other Expenses You Can Deduct You may also be able to deduct the following expenses. H&r block taxes See Publication 535 to find out whether you can deduct them. H&r block taxes Advertising. H&r block taxes Bank fees. H&r block taxes Donations to business organizations. H&r block taxes Education expenses. H&r block taxes Energy efficient commercial buildings deduction expenses. H&r block taxes Impairment-related expenses. H&r block taxes Interview expense allowances. H&r block taxes Licenses and regulatory fees. H&r block taxes Moving machinery. H&r block taxes Outplacement services. H&r block taxes Penalties and fines you pay for late performance or nonperformance of a contract. H&r block taxes Repairs that keep your property in a normal efficient operating condition. H&r block taxes Repayments of income. H&r block taxes Subscriptions to trade or professional publications. H&r block taxes Supplies and materials. H&r block taxes Utilities. H&r block taxes Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. H&r block taxes For more information, see Publication 535. H&r block taxes Bribes and kickbacks. H&r block taxes Charitable contributions. H&r block taxes Demolition expenses or losses. H&r block taxes Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. H&r block taxes Lobbying expenses. H&r block taxes Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. H&r block taxes Personal, living, and family expenses. H&r block taxes Political contributions. H&r block taxes Repairs that add to the value of your property or significantly increase its life. H&r block taxes Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - IRS Operations & Budget

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If you're looking for data on general IRS operations & budget, this is the section for you. Within this section, you can learn about taxpayer refunds, IRS collections, law enforcement, taxpayer assistance, budget and workforce, and system management.

Below are links to the topics within this section, as well as some examples of what you can find within each topic.

Assisting Taxpayers

• Assistance & education programs
• Post-filing assistance program

Collecting Revenue

• Gross collections
• Number of returns filed
• Number of returns filed electronically
• Return filing projections

Data by State

• Returns filed, taxes collected and refunds by state

Enforcing Laws

• Examination coverage
• Tax-exempt organizations examined
• Delinquent collection activities
• Criminal investigation program

Issuing Refunds

• Number of refunds issued
• Total dollars refunded
• Information on historical IRS tax refunds
• Individual income tax refund offsets

Budget & Workforce

• Costs incurred by the IRS
• Appeals workload
• IRS personnel summary
• Internal audits and security activities

2003 IRS Report to Congress

• 2003 IRS Report to Congress on IRS enforcement activity

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Page Last Reviewed or Updated: 22-Jan-2013

The H&r Block Taxes

H&r block taxes 9. H&r block taxes   Education Exception to Additional Tax on Early IRA Distributions Table of Contents Introduction Who Is Eligible Figuring the Amount Not Subject to the 10% Tax Reporting Early Distributions Introduction Generally, if you take a distribution from your IRA before you reach age 59½, you must pay a 10% additional tax on the early distribution. H&r block taxes This applies to any IRA you own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA, or a SIMPLE IRA. H&r block taxes The additional tax on an early distribution from a SIMPLE IRA may be as high as 25%. H&r block taxes See Publication 560, Retirement Plans for Small Business, for information on SEP-IRAs, and Publication 590, for information about all other IRAs. H&r block taxes However, you can take distributions from your IRAs for qualified higher education expenses without having to pay the 10% additional tax. H&r block taxes You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax. H&r block taxes Generally, if the taxable part of the distribution is less than or equal to the adjusted qualified education expenses (AQEE), none of the distribution is subject to the additional tax. H&r block taxes If the taxable part of the distribution is more than the AQEE, only the excess is subject to the additional tax. H&r block taxes Who Is Eligible You can take a distribution from your IRA before you reach age 59½ and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for: yourself, your spouse, or your or your spouse's child, foster child, adopted child, or descendant of any of them. H&r block taxes Qualified education expenses. H&r block taxes   For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. H&r block taxes They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. H&r block taxes   In addition, if the student is at least a half-time student, room and board are qualified education expenses. H&r block taxes   The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. H&r block taxes The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. H&r block taxes The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. H&r block taxes You will need to contact the eligible educational institution for qualified room and board costs. H&r block taxes Eligible educational institution. H&r block taxes   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. H&r block taxes S. H&r block taxes Department of Education. H&r block taxes It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block taxes The educational institution should be able to tell you if it is an eligible educational institution. H&r block taxes   Certain educational institutions located outside the United States also participate in the U. H&r block taxes S. H&r block taxes Department of Education's Federal Student Aid (FSA) programs. H&r block taxes Half-time student. H&r block taxes   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled. H&r block taxes Figuring the Amount Not Subject to the 10% Tax To determine the amount of your distribution that is not subject to the 10% additional tax, first figure your adjusted qualified education expenses. H&r block taxes You do this by reducing your total qualified education expenses by any tax-free educational assistance, which includes: Expenses used to figure the tax-free portion of distributions from a Coverdell education savings account (ESA) (see Distributions in chapter 7, Coverdell Education Savings Account), The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. H&r block taxes Do not reduce the qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance given to either the student or the individual making the withdrawal, or A withdrawal from personal savings (including savings from a qualified tuition program (QTP)). H&r block taxes If your IRA distribution is equal to or less than your adjusted qualified education expenses, you are not subject to the 10% additional tax. H&r block taxes Example 1. H&r block taxes In 2013, Erin (age 32) took a year off from teaching to attend graduate school full-time. H&r block taxes She paid $5,800 of qualified education expenses from the following sources. H&r block taxes   Employer-provided educational assistance  (tax free) $5,000     Early distribution from IRA (includes $500 taxable earnings) 3,200           Before Erin can determine if she must pay the 10% additional tax on her IRA distribution, she must reduce her total qualified education expenses. H&r block taxes   Total qualified education expenses $5,800     Minus: Tax-free educational assistance −5,000     Equals: Adjusted qualified  education expenses (AQEE) $ 800   Because Erin's AQEE ($800) are more than the taxable portion of her IRA distribution ($500), she does not have to pay the 10% additional tax on any part of this distribution. H&r block taxes However, she must include the $500 taxable earnings in her gross income subject to income tax. H&r block taxes Example 2. H&r block taxes Assume the same facts as in Example 1 , except that Erin deducted some of the contributions to her IRA, so the taxable part of her early distribution is higher by $1,000. H&r block taxes This must be included in her income subject to income tax. H&r block taxes The taxable part of Erin's IRA distribution ($1,000) is larger than her $800 AQEE. H&r block taxes Therefore, she must pay the 10% additional tax on $200, the taxable part of her distribution ($1,000) that is more than her qualified education expenses ($800). H&r block taxes She does not have to pay the 10% additional tax on the remaining $800 of her taxable distribution. H&r block taxes Reporting Early Distributions By January 31, 2014, the payer of your IRA distribution should send you Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. H&r block taxes The information on this form will help you determine how much of your distribution is taxable for income tax purposes and how much is subject to the 10% additional tax. H&r block taxes If you received an early distribution from your IRA, you must report the taxable earnings on Form 1040, line 15b (Form 1040NR, line 16b). H&r block taxes Then, if you qualify for an exception for qualified higher education expenses, you must file Form 5329 to show how much, if any, of your early distribution is subject to the 10% additional tax. H&r block taxes See the Instructions for Form 5329, Part I, for help in completing the form and entering the results on Form 1040 or 1040NR. H&r block taxes There are many other situations in which Form 5329 is required. H&r block taxes If, during 2013, you had other distributions from IRAs or qualified retirement plans, or have made excess contributions to certain tax-favored accounts, see the instructions for line 58 (Form 1040) or line 56 (Form 1040NR) to determine if you must file Form 5329. H&r block taxes Prev  Up  Next   Home   More Online Publications