File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Income Taxes Free

1040ez Online FreeInstructions For Filing An Amended Tax ReturnTurbotax MilitaryCan I File 2011 Tax Return Online1040ez InstructionTurbotax 1040x FormFree 2012 Tax Filing1040x For 2010H&r Block State TaxesFree Tax File1040 Forms And InstructionsHow To File 2011 Taxes Late OnlineForm 1040ez More:label_form_201040ez More:taxesOrder Irs Tax Forms 20121040ez Form For 2014How To File 2012 Tax ReturnAmended Tax FormFile State Return OnlyIrs 2012 Tax Forms And Instructions1040ez Forms 2013Amend 2011 Tax Return Free2013 Form 1040ez InstructionsCalif State Taxes WebsiteAmend Taxes OnlineWhat Can I Write Off On My Taxes As A StudentIrs Form 1040x 2012Mi 1040xTax Software 20112011 Ez Tax Form2012 Income Tax2011 Tax 1040 FormFree State Efile Tax ReturnHow To File An Amended Tax Return For 2012Tax Form For StudentsForm 1040nr Ez 2012Free State Tax Return File2013 Form 1040ezTurbo Tax 1040ezIrs Gov Form 10402011 Tax Forms 1040ez

Income Taxes Free

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

Economic Adjustment Office

The Office of Economic Adjustment helps state and local communities adjust to major changes in local Department of Defense activity (for example, a base closure).

Contact the Agency or Department

Website: Economic Adjustment Office

Address: 2231 Crystal Dr
Suite 520

Arlington, VA 22202

Phone Number: 703-697-2130

The Income Taxes Free

Income taxes free 2. Income taxes free   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Income taxes free The pay may be in cash, property, or services. Income taxes free It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Income taxes free For information about deducting employment taxes, see chapter 5. Income taxes free You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Income taxes free Empowerment zone employment credit (Form 8844). Income taxes free Indian employment credit (Form 8845). Income taxes free Work opportunity credit (Form 5884). Income taxes free Credit for employer differential wage payments (Form 8932). Income taxes free Reduce your deduction for employee wages by the amount of employment credits you claim. Income taxes free For more information about these credits, see the form on which the credit is claimed. Income taxes free Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Income taxes free Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Income taxes free These and other requirements that apply to all business expenses are explained in chapter 1. Income taxes free In addition, the pay must meet both of the following tests. Income taxes free Test 1. Income taxes free It must be reasonable. Income taxes free Test 2. Income taxes free It must be for services performed. Income taxes free The form or method of figuring the pay does not affect its deductibility. Income taxes free For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Income taxes free Test 1—Reasonableness You must be able to prove that the pay is reasonable. Income taxes free Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Income taxes free If the pay is excessive, the excess pay is disallowed as a deduction. Income taxes free Factors to consider. Income taxes free   Determine the reasonableness of pay by the facts and circumstances. Income taxes free Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Income taxes free   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Income taxes free The duties performed by the employee. Income taxes free The volume of business handled. Income taxes free The character and amount of responsibility. Income taxes free The complexities of your business. Income taxes free The amount of time required. Income taxes free The cost of living in the locality. Income taxes free The ability and achievements of the individual employee performing the service. Income taxes free The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Income taxes free Your policy regarding pay for all your employees. Income taxes free The history of pay for each employee. Income taxes free Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Income taxes free Employee-shareholder salaries. Income taxes free   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Income taxes free The excessive part of the salary would not be allowed as a salary deduction by the corporation. Income taxes free For more information on corporate distributions to shareholders, see Publication 542, Corporations. Income taxes free Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Income taxes free For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Income taxes free Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Income taxes free If you give property to an employee as an employee achievement award, your deduction may be limited. Income taxes free Achievement awards. Income taxes free   An achievement award is an item of tangible personal property that meets all the following requirements. Income taxes free It is given to an employee for length of service or safety achievement. Income taxes free It is awarded as part of a meaningful presentation. Income taxes free It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Income taxes free Length-of-service award. Income taxes free    An award will qualify as a length-of-service award only if either of the following applies. Income taxes free The employee receives the award after his or her first 5 years of employment. Income taxes free The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Income taxes free Safety achievement award. Income taxes free    An award for safety achievement will qualify as an achievement award unless one of the following applies. Income taxes free It is given to a manager, administrator, clerical employee, or other professional employee. Income taxes free During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Income taxes free Deduction limit. Income taxes free   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Income taxes free $400 for awards that are not qualified plan awards. Income taxes free $1,600 for all awards, whether or not qualified plan awards. Income taxes free   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Income taxes free   A highly compensated employee is an employee who meets either of the following tests. Income taxes free The employee was a 5% owner at any time during the year or the preceding year. Income taxes free The employee received more than $115,000 in pay for the preceding year. Income taxes free You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Income taxes free   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Income taxes free To figure this average cost, ignore awards of nominal value. Income taxes free Deduct achievement awards as a nonwage business expense on your return or business schedule. Income taxes free You may not owe employment taxes on the value of some achievement awards you provide to an employee. Income taxes free See Publication 15-B. Income taxes free Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Income taxes free However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Income taxes free If the bonus is paid in property, see Property , later. Income taxes free Gifts of nominal value. Income taxes free    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Income taxes free Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Income taxes free For more information on this deduction limit, see Meals and lodging , later. Income taxes free Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Income taxes free Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Income taxes free For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Income taxes free Fringe Benefits A fringe benefit is a form of pay for the performance of services. Income taxes free You can generally deduct the cost of fringe benefits. Income taxes free You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Income taxes free You also may not owe employment taxes on the value of the fringe benefits. Income taxes free See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Income taxes free Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Income taxes free Certain fringe benefits are discussed next. Income taxes free See Publication 15-B for more details on these and other fringe benefits. Income taxes free Meals and lodging. Income taxes free   You can usually deduct the cost of furnishing meals and lodging to your employees. Income taxes free Deduct the cost in whatever category the expense falls. Income taxes free For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Income taxes free If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Income taxes free Deduction limit on meals. Income taxes free   You can generally deduct only 50% of the cost of furnishing meals to your employees. Income taxes free However, you can deduct the full cost of the following meals. Income taxes free Meals whose value you include in an employee's wages. Income taxes free Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Income taxes free This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Income taxes free Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Income taxes free Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Income taxes free Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Income taxes free This does not include meals you furnish on vessels primarily providing luxury water transportation. Income taxes free Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Income taxes free This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Income taxes free Employee benefit programs. Income taxes free   Employee benefit programs include the following. Income taxes free Accident and health plans. Income taxes free Adoption assistance. Income taxes free Cafeteria plans. Income taxes free Dependent care assistance. Income taxes free Education assistance. Income taxes free Life insurance coverage. Income taxes free Welfare benefit funds. Income taxes free   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Income taxes free For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Income taxes free ). Income taxes free Life insurance coverage. Income taxes free   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Income taxes free See Regulations section 1. Income taxes free 264-1 for more information. Income taxes free Welfare benefit funds. Income taxes free   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Income taxes free Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Income taxes free   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Income taxes free If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Income taxes free   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Income taxes free The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Income taxes free The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Income taxes free These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Income taxes free   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Income taxes free Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Income taxes free However, if the employee performs no services, treat the amount you advanced as a loan. Income taxes free If the employee does not repay the loan, treat it as income to the employee. Income taxes free Below-market interest rate loans. Income taxes free   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Income taxes free See Below-Market Loans in chapter 4. Income taxes free Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Income taxes free The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Income taxes free You can claim the deduction only for the tax year in which your employee includes the property's value in income. Income taxes free Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Income taxes free You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Income taxes free Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Income taxes free These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Income taxes free Restricted property. Income taxes free   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Income taxes free However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Income taxes free    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Income taxes free This means that the recipient is not likely to have to give up his or her rights in the property in the future. Income taxes free Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Income taxes free However, your deduction may be limited. Income taxes free If you make the payment under an accountable plan, deduct it in the category of the expense paid. Income taxes free For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Income taxes free If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Income taxes free See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Income taxes free Sick and Vacation Pay Sick pay. Income taxes free   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Income taxes free However, your deduction is limited to amounts not compensated by insurance or other means. Income taxes free Vacation pay. Income taxes free   Vacation pay is an employee benefit. Income taxes free It includes amounts paid for unused vacation leave. Income taxes free You can deduct vacation pay only in the tax year in which the employee actually receives it. Income taxes free This rule applies regardless of whether you use the cash or accrual method of accounting. Income taxes free Prev  Up  Next   Home   More Online Publications