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How To File Self Employed Income Tax

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How To File Self Employed Income Tax

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

How to file self employed income tax 5. How to file self employed income tax   Credits Table of Contents Credit for the Elderly or the DisabledCan You Take the Credit? Figuring the Credit Child and Dependent Care Credit Earned Income Credit (EIC)Do You Qualify for the Earned Income Credit (EIC)? Figuring the EIC This chapter briefly discusses the credit for the elderly or disabled, the child and dependent care credit, and the earned income credit. How to file self employed income tax You may be able to reduce your federal income tax by claiming one or more of these credits. How to file self employed income tax Credit for the Elderly or the Disabled This section explains who qualifies for the credit for the elderly or the disabled and how to figure this credit. How to file self employed income tax For more information, see Publication 524, Credit for the Elderly or the Disabled. How to file self employed income tax You can take the credit only if you file Form 1040 or Form 1040A. How to file self employed income tax You cannot take the credit if you file Form 1040EZ or Form 1040NR. How to file self employed income tax Can You Take the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. How to file self employed income tax You are a qualified individual. How to file self employed income tax Your income is not more than certain limits. How to file self employed income tax  You can use Figure 5-A and Figure 5-B as guides to see if you are eligible for the credit. How to file self employed income tax   Qualified Individual You are a qualified individual for this credit if you are a U. How to file self employed income tax S. How to file self employed income tax citizen or resident alien, and either of the following applies. How to file self employed income tax You were age 65 or older at the end of 2013. How to file self employed income tax You were under age 65 at the end of 2013 and all three of the following statements are true. How to file self employed income tax You retired on permanent and total disability (explained later). How to file self employed income tax You received taxable disability income for 2013. How to file self employed income tax On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). How to file self employed income tax Age 65. How to file self employed income tax You are considered to be age 65 on the day before your 65th birthday. How to file self employed income tax Therefore, you are considered to be age 65 at the end of 2013 if you were born before January 2, 1949. How to file self employed income tax Figure 5-A. How to file self employed income tax Are You a Qualified Individual? This image is too large to be displayed in the current screen. How to file self employed income tax Please click the link to view the image. How to file self employed income tax Figure 5-A, Are you a qualified individual? U. How to file self employed income tax S. How to file self employed income tax citizen or resident alien. How to file self employed income tax   You must be a U. How to file self employed income tax S. How to file self employed income tax citizen or resident alien (or be treated as a resident alien) to take the credit. How to file self employed income tax Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. How to file self employed income tax Exceptions. How to file self employed income tax   You may be able to take the credit if you are a nonresident alien who is married to a U. How to file self employed income tax S. How to file self employed income tax citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. How to file self employed income tax S. How to file self employed income tax resident alien. How to file self employed income tax If you make that choice, both you and your spouse are taxed on your worldwide income. How to file self employed income tax   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. How to file self employed income tax S. How to file self employed income tax citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. How to file self employed income tax S. How to file self employed income tax resident alien for the entire year. How to file self employed income tax In that case, you may be allowed to take the credit. How to file self employed income tax   For information on these choices, see chapter 1 of Publication 519, U. How to file self employed income tax S. How to file self employed income tax Tax Guide for Aliens. How to file self employed income tax Married persons. How to file self employed income tax   Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. How to file self employed income tax However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. How to file self employed income tax Head of household. How to file self employed income tax   You can file as head of household and qualify to take the credit even if your spouse lived with you during the first 6 months of the year if you meet certain tests. How to file self employed income tax See Publication 524 and Publication 501. How to file self employed income tax Under age 65. How to file self employed income tax   If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability and have taxable disability income (discussed later under Disability income ). How to file self employed income tax You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. How to file self employed income tax You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the end of the tax year. How to file self employed income tax   Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. How to file self employed income tax If you retired on disability before 1977 and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. How to file self employed income tax Permanent and total disability. How to file self employed income tax   You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. How to file self employed income tax A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. How to file self employed income tax See Physician's statement , later. How to file self employed income tax Substantial gainful activity. How to file self employed income tax   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. How to file self employed income tax   Full-time work (or part-time work done at the employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. How to file self employed income tax   Substantial gainful activity is not work you do to take care of yourself or your home. How to file self employed income tax It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. How to file self employed income tax However, doing this kind of work may show that you are able to engage in substantial gainful activity. How to file self employed income tax    Figure 5-B. How to file self employed income tax Income Limits IF your filing status is. How to file self employed income tax . How to file self employed income tax . How to file self employed income tax THEN even if you qualify (see Figure 5-A), you CANNOT take the credit if: Your adjusted gross income (AGI)* is equal to or more than. How to file self employed income tax . How to file self employed income tax . How to file self employed income tax OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. How to file self employed income tax . How to file self employed income tax . How to file self employed income tax single, head of household, or qualifying widow(er) with dependent child $17,500 $5,000 married filing jointly and only one spouse qualifies in Figure 5-A $20,000 $5,000 married filing jointly and both spouses qualify in Figure 5-A $25,000 $7,500 married filing separately and you lived apart from your spouse for all of 2013 $12,500 $3,750 *AGI is the amount on Form 1040A, line 22, or Form 1040, line 38      The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. How to file self employed income tax Physician's statement. How to file self employed income tax   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. How to file self employed income tax   You do not have to file this statement with your tax return, but you must keep it for your records. How to file self employed income tax The Instructions for Schedule R (Form 1040A or 1040) include a statement your physician can complete and that you can keep for your records. How to file self employed income tax Veterans. How to file self employed income tax   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. How to file self employed income tax VA Form 21-0172 must be signed by a person authorized by the VA to do so. How to file self employed income tax You can get this form from your local VA regional office. How to file self employed income tax Physician's statement obtained in earlier year. How to file self employed income tax   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. How to file self employed income tax For a detailed explanation of the conditions you must meet, see the instructions for Schedule R (Form 1040A or 1040), Part II. How to file self employed income tax If you meet the required conditions, you must check the box on Schedule R (Form 1040A or 1040), Part II, line 2. How to file self employed income tax   If you checked Schedule R (Form 1040A or 1040), Part I, box 4, 5, or 6, print in the space above the box in Part II, line 2, the first name(s) of the spouse(s) for whom the box is checked. How to file self employed income tax Disability income. How to file self employed income tax   If you are under age 65, you must also have taxable disability income to qualify for the credit. How to file self employed income tax   Disability income must meet the following two requirements. How to file self employed income tax It must be paid under your employer's accident or health plan or pension plan. How to file self employed income tax It must be included in your income as wages (or payments in lieu of wages) for the time you are absent from work because of permanent and total disability. How to file self employed income tax Payments that are not disability income. How to file self employed income tax   Any payment you receive from a plan that does not provide for disability retirement is not disability income. How to file self employed income tax Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. How to file self employed income tax   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. How to file self employed income tax Mandatory retirement age is the age set by your employer at which you would have had to retire had you not become disabled. How to file self employed income tax Figuring the Credit You can figure the credit yourself, or the IRS will figure it for you. How to file self employed income tax Figuring the credit yourself. How to file self employed income tax   If you figure the credit yourself, fill out the front of Schedule R (Form 1040A or 1040). How to file self employed income tax Next, fill out Schedule R (Form 1040A or 1040), Part III. How to file self employed income tax Credit figured for you. How to file self employed income tax   If you can take the credit and you want the IRS to figure the credit for you, see Publication 524 or the Instructions for Schedule R (Form 1040A or 1040). How to file self employed income tax If you want the IRS to figure your tax, see chapter 30 of Publication 17, Your Federal Income Tax. How to file self employed income tax Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. How to file self employed income tax The credit can be up to 35% of your expenses. How to file self employed income tax To qualify, you must pay these expenses so you can work or look for work. How to file self employed income tax If you claim this credit, you must include on your return the name and taxpayer identification number (generally the social security number) of each qualifying person for whom care is provided. How to file self employed income tax If the correct information is not shown, the credit may be reduced or disallowed. How to file self employed income tax You also must show on your return the name, address, and the taxpayer identification number of the person(s) or organization(s) that provided the care. How to file self employed income tax For more information, see Publication 503, Child and Dependent Care Expenses. How to file self employed income tax Earned Income Credit (EIC) The earned income credit (EIC) is a refundable tax credit for certain people who work and have earned income under $51,567. How to file self employed income tax The EIC is available to persons with or without a qualifying child. How to file self employed income tax Credit has no effect on certain welfare benefits. How to file self employed income tax   Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. How to file self employed income tax These programs include the following. How to file self employed income tax Medicaid and supplemental security income (SSI). How to file self employed income tax Supplemental Nutrition Assistance Program (food stamps). How to file self employed income tax Low-income housing. How to file self employed income tax Temporary Assistance for Needy Families (TANF). How to file self employed income tax  In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. How to file self employed income tax Check with your local benefit coordinator to find out if your refund will affect your benefits. How to file self employed income tax Do You Qualify for the Earned Income Credit (EIC)? Use Table 5-1 as an initial guide to the rules you must meet in order to qualify for the EIC. How to file self employed income tax The specific rules you must meet depend on whether you have a qualifying child. How to file self employed income tax If you have a qualifying child, the rules in Parts A, B, and D apply to you. How to file self employed income tax If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. How to file self employed income tax  If, after reading all the rules in each part that applies to you, you think you may qualify for the credit, see Publication 596, Earned Income Credit, for more details about the EIC. How to file self employed income tax You can also find information about the EIC in the instructions for Form 1040 (line 64a), Form 1040A (line 38a), or Form 1040EZ (line 8a). How to file self employed income tax The sections that follow provide additional information for some of the rules. How to file self employed income tax Adjusted gross income (AGI). How to file self employed income tax   Under Rule 1, you cannot claim the EIC unless your AGI is less than the applicable limit shown in Part A of Table 5-1. How to file self employed income tax Your AGI is the amount on line 37 (Form 1040), line 21 (Form 1040A), or line 4 (Form 1040EZ). How to file self employed income tax Table 5-1. How to file self employed income tax Earned Income Credit (EIC) in a Nutshell First, you must meet all the rules in this column. How to file self employed income tax Second, you must meet all the rules in one of these columns, whichever applies. How to file self employed income tax Third, you must meet the rule in this column. How to file self employed income tax Part A. How to file self employed income tax  Rules for Everyone Part B. How to file self employed income tax  Rules If You Have a Qualifying Child Part C. How to file self employed income tax  Rules If You Do Not Have a Qualifying Child Part D. How to file self employed income tax  Figuring and Claiming the EIC 1. How to file self employed income tax Your adjusted gross income (AGI) must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. How to file self employed income tax 2. How to file self employed income tax You must have a valid social security number. How to file self employed income tax  3. How to file self employed income tax Your filing status cannot be “Married filing separately. How to file self employed income tax ” 4. How to file self employed income tax You must be a U. How to file self employed income tax S. How to file self employed income tax citizen or resident alien all year. How to file self employed income tax  5. How to file self employed income tax You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). How to file self employed income tax  6. How to file self employed income tax Your investment income must be $3,300 or less. How to file self employed income tax  7. How to file self employed income tax You must have earned income. How to file self employed income tax 8. How to file self employed income tax Your child must meet the relationship, age, residency, and joint return tests. How to file self employed income tax  9. How to file self employed income tax Your qualifying child cannot be used by more than one person to claim the EIC. How to file self employed income tax  10. How to file self employed income tax You generally cannot be a qualifying child of another person. How to file self employed income tax 11. How to file self employed income tax You must be at least age 25 but under age 65. How to file self employed income tax  12. How to file self employed income tax You cannot be the dependent of another person. How to file self employed income tax  13. How to file self employed income tax You generally cannot be a qualifying child of another person. How to file self employed income tax  14. How to file self employed income tax You must have lived in the United States more than half of the year. How to file self employed income tax 15. How to file self employed income tax Your earned income must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. How to file self employed income tax Social security number. How to file self employed income tax   Under Rule 2, you (and your spouse if you are married filing jointly) must have a valid social security number (SSN) issued by the Social Security Administration (SSA). How to file self employed income tax Any qualifying child listed on Schedule EIC also must have a valid SSN. How to file self employed income tax (See Qualifying child , later, if you have a qualifying child. How to file self employed income tax )   If your social security card (or your spouse's if you are married filing jointly) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. How to file self employed income tax An example of a federally funded benefit is Medicaid. How to file self employed income tax Investment income. How to file self employed income tax   Under Rule 6, you cannot claim the EIC unless your investment income is $3,300 or less. How to file self employed income tax If your investment income is more than $3,300, you cannot claim the credit. How to file self employed income tax For most people, investment income is the total of the following amounts. How to file self employed income tax Taxable interest (line 8a of Form 1040 or 1040A). How to file self employed income tax Tax-exempt interest (line 8b of Form 1040 or 1040A). How to file self employed income tax Dividend income (line 9a of Form 1040 or 1040A). How to file self employed income tax Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). How to file self employed income tax  If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. How to file self employed income tax   For more information about investment income, see Publication 596, Earned Income Credit. How to file self employed income tax Earned income. How to file self employed income tax   Under Rule 7, you must have earned income to claim the EIC. How to file self employed income tax Under Rule 15, you cannot claim the EIC unless your earned income is less than the applicable limit shown in Table 5-1, Part D. How to file self employed income tax Earned income includes all of the following types of income. How to file self employed income tax Wages, salaries, tips, and other taxable employee pay. How to file self employed income tax Employee pay is earned income only if it is taxable. How to file self employed income tax Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. How to file self employed income tax But there is an exception for nontaxable combat pay, which you can choose to include in earned income. How to file self employed income tax Net earnings from self-employment. How to file self employed income tax Gross income received as a statutory employee. How to file self employed income tax Gross income defined. How to file self employed income tax   Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). How to file self employed income tax Do not include any social security benefits unless (a) you are married filing a separate tax return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). How to file self employed income tax If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b to figure the taxable part of social security benefits you must include in gross income. How to file self employed income tax Self-employed persons. How to file self employed income tax   If you are self-employed and your net earnings are $400 or more, be sure to correctly fill out Schedule SE (Form 1040), Self-Employment Tax, and pay the proper amount of self-employment tax. How to file self employed income tax If you do not, you may not get all the credit to which you are entitled. How to file self employed income tax Disability benefits. How to file self employed income tax   If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. How to file self employed income tax Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. How to file self employed income tax Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. How to file self employed income tax   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. How to file self employed income tax It does not matter whether you have reached minimum retirement age. How to file self employed income tax If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code J. How to file self employed income tax Income that is not earned income. How to file self employed income tax   Examples of items that are not earned income under Rule 7 include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits — except for payments covered under Disability benefits earlier), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. How to file self employed income tax Do not include any of these items in your earned income. How to file self employed income tax Workfare payments. How to file self employed income tax   Nontaxable workfare payments are not earned income for the EIC. How to file self employed income tax These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. How to file self employed income tax Qualifying child. How to file self employed income tax   Under Rule 8, your child is a qualifying child if your child meets four tests. How to file self employed income tax The four tests are: Relationship, Age, Residency, and Joint return. How to file self employed income tax   The four tests are illustrated in Figure 5-C. How to file self employed income tax See Publication 596 for more information about each test. How to file self employed income tax Figure 5-C. How to file self employed income tax Tests for Qualifying Child A qualifying child for the EIC is a child who is your. How to file self employed income tax . How to file self employed income tax . How to file self employed income tax Son, daughter, stepchild, foster child,  or a descendant of any of them (for example, your grandchild) OR Brother, sister, half brother, half sister, stepbrother,  stepsister, or a descendant of any of them (for example, your  niece or nephew) was . How to file self employed income tax . How to file self employed income tax . How to file self employed income tax Under age 19 at the end of 2013 and younger than you (or your spouse if filing jointly) OR Under age 24 at the end of 2013, a student, and younger than you (or your spouse if filing jointly) OR Permanently and totally disabled at any time during the year, regardless of age who. How to file self employed income tax . How to file self employed income tax . How to file self employed income tax Is not filing a joint return for 2013  (or is filing a joint return for 2013 only as a claim for refund of income tax withheld or estimated tax paid) who. How to file self employed income tax . How to file self employed income tax . How to file self employed income tax Lived with you in the United States for more than half of 2013. How to file self employed income tax  If the child did not live with you for the required time, see Publication 596 for more information. How to file self employed income tax Figuring the EIC To figure the amount of your credit, you have two choices. How to file self employed income tax Have the IRS figure the EIC for you. How to file self employed income tax If you want to do this, see IRS Will Figure the EIC for You in Publication 596. How to file self employed income tax Figure the EIC yourself. How to file self employed income tax If you want to do this, see How To Figure the EIC Yourself in Publication 596. 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