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Prior taxes 2. Prior taxes   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. Prior taxes Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Prior taxes They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Prior taxes This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Prior taxes What is the tax benefit of the American opportunity credit. Prior taxes   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. Prior taxes   A tax credit reduces the amount of income tax you may have to pay. Prior taxes Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Prior taxes Forty percent of the American opportunity credit may be refundable. Prior taxes This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Prior taxes   Your allowable American opportunity credit may be limited by the amount of your income. Prior taxes Also, the nonrefundable part of the credit may be limited by the amount of your tax. Prior taxes Overview of the American opportunity credit. Prior taxes   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Prior taxes The details are discussed in this chapter. Prior taxes Can you claim more than one education credit this year. Prior taxes   For each student, you can elect for any year only one of the credits. Prior taxes For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. Prior taxes   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. Prior taxes If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. Prior taxes This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Prior taxes Differences between the American opportunity and lifetime learning credits. Prior taxes   There are several differences between these two credits. Prior taxes For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. Prior taxes However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Prior taxes The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Prior taxes If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. Prior taxes If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Prior taxes Table 2-1. Prior taxes Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. Prior taxes Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Prior taxes You pay qualified education expenses of higher education. Prior taxes You pay the education expenses for an eligible student. Prior taxes The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Prior taxes Student qualifications. Prior taxes   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Prior taxes As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. Prior taxes For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Prior taxes Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. Prior taxes If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. Prior taxes For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. Prior taxes The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Prior taxes However, the standard may not be lower than any of those established by the U. Prior taxes S. Prior taxes Department of Education under the Higher Education Act of 1965. Prior taxes For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. Prior taxes See Prepaid expenses, later. Prior taxes As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. Prior taxes Example 1. Prior taxes Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Prior taxes Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. Prior taxes Sharon claimed the American opportunity credit on her 2012 tax return. Prior taxes The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Prior taxes Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Prior taxes If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. Prior taxes Example 2. Prior taxes Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Prior taxes His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Prior taxes No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Prior taxes The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Prior taxes Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Prior taxes If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Prior taxes If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Prior taxes Example 3. Prior taxes Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Prior taxes Glenda pays her tuition for the 2014 Spring semester in December 2013. Prior taxes Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. Prior taxes If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Prior taxes You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Prior taxes Note. Prior taxes Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Prior taxes “Qualified education expenses” are defined later under Qualified Education Expenses . Prior taxes “Eligible students” are defined later under Who Is an Eligible Student . Prior taxes A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Prior taxes You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. Prior taxes This image is too large to be displayed in the current screen. Prior taxes Please click the link to view the image. Prior taxes Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. Prior taxes Your filing status is married filing separately. Prior taxes You are listed as a dependent on another person's tax return (such as your parents'). Prior taxes See Who Can Claim a Dependent's Expenses , later. Prior taxes Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Prior taxes MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Prior taxes You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Prior taxes More information on nonresident aliens can be found in Publication 519, U. Prior taxes S. Prior taxes Tax Guide for Aliens. Prior taxes What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Prior taxes Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. Prior taxes For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. Prior taxes Academic period. Prior taxes   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Prior taxes In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Prior taxes Paid with borrowed funds. Prior taxes   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Prior taxes Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. Prior taxes Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Prior taxes Student withdraws from class(es). Prior taxes   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Prior taxes Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Prior taxes Eligible educational institution. Prior taxes   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Prior taxes S. Prior taxes Department of Education. Prior taxes It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Prior taxes The educational institution should be able to tell you if it is an eligible educational institution. Prior taxes   Certain educational institutions located outside the United States also participate in the U. Prior taxes S. Prior taxes Department of Education's Federal Student Aid (FSA) programs. Prior taxes Related expenses. Prior taxes   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Prior taxes   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Prior taxes Prepaid expenses. Prior taxes   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Prior taxes See Academic period, earlier. Prior taxes For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Prior taxes    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Prior taxes   In the following examples, assume that each student is an eligible student at an eligible educational institution. Prior taxes Example 1. Prior taxes Jefferson is a sophomore in University V's degree program in dentistry. Prior taxes This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Prior taxes Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Prior taxes Example 2. Prior taxes Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Prior taxes The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Prior taxes William bought his books from a friend; Grace bought hers at College W's bookstore. Prior taxes Both are qualified education expenses for the American opportunity credit. Prior taxes Example 3. Prior taxes When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Prior taxes This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Prior taxes No portion of the fee covers personal expenses. Prior taxes Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. Prior taxes No Double Benefit Allowed You cannot do any of the following. Prior taxes Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. Prior taxes Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Prior taxes Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Prior taxes Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. Prior taxes See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Prior taxes Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Prior taxes See Adjustments to Qualified Education Expenses, next. Prior taxes Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Prior taxes The result is the amount of adjusted qualified education expenses for each student. Prior taxes Tax-free educational assistance. Prior taxes   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Prior taxes See Academic period, earlier. Prior taxes   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Prior taxes This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Prior taxes   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Prior taxes If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Prior taxes   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Prior taxes Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Prior taxes Generally, any scholarship or fellowship is treated as tax free. Prior taxes However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Prior taxes The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Prior taxes The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Prior taxes You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Prior taxes For examples, see Coordination with Pell grants and other scholarships, later. Prior taxes Refunds. Prior taxes   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Prior taxes Some tax-free educational assistance received after 2013 may be treated as a refund. Prior taxes See Tax-free educational assistance, earlier. Prior taxes Refunds received in 2013. Prior taxes   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Prior taxes Refunds received after 2013 but before your income tax return is filed. Prior taxes   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Prior taxes Refunds received after 2013 and after your income tax return is filed. Prior taxes   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Prior taxes See Credit recapture, next. Prior taxes Credit recapture. Prior taxes    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Prior taxes You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Prior taxes You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). Prior taxes Include that amount as an additional tax for the year the refund or tax-free assistance was received. Prior taxes Example. Prior taxes   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Prior taxes You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Prior taxes After you filed your return, you received a refund of $4,000. Prior taxes You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Prior taxes The refigured credit is $2,250. Prior taxes The increase to your tax liability is also $250. Prior taxes Include the difference of $250 as additional tax on your 2014 tax return. Prior taxes See the instructions for your 2014 income tax return to determine where to include this tax. Prior taxes If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Prior taxes Amounts that do not reduce qualified education expenses. Prior taxes   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Prior taxes   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Prior taxes The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Prior taxes The use of the money is not restricted. Prior taxes Example 1. Prior taxes Joan paid $3,000 for tuition and $5,000 for room and board at University X. Prior taxes The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Prior taxes To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Prior taxes The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Prior taxes University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Prior taxes Joan does not report any portion of the scholarship as income on her tax return. Prior taxes In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Prior taxes The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Prior taxes Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Prior taxes Example 2. Prior taxes The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Prior taxes Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Prior taxes Joan is treated as having paid $3,000 in qualified education expenses. Prior taxes Coordination with Pell grants and other scholarships. Prior taxes   In some cases, you may be able to reduce your tax liability by including scholarships in income. Prior taxes If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Prior taxes The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Prior taxes Example 1—No scholarship. Prior taxes Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. Prior taxes This was his first year of postsecondary education. Prior taxes During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Prior taxes He and the college meet all the requirements for the American opportunity credit. Prior taxes Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Prior taxes Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Prior taxes His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Prior taxes He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. Prior taxes Example 2—Scholarship excluded from income. Prior taxes The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Prior taxes Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Prior taxes If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. Prior taxes His adjusted qualified education expenses will be zero and he will not have an education credit. Prior taxes Therefore, Bill's tax after credits would be $2,599. Prior taxes Example 3—Scholarship partially included in income. Prior taxes The facts are the same as in Example 2—Scholarship excluded from income. Prior taxes If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. Prior taxes The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. Prior taxes Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. Prior taxes Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. Prior taxes Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Prior taxes This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Prior taxes Sports, games, hobbies, and noncredit courses. Prior taxes   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Prior taxes However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Prior taxes Comprehensive or bundled fees. Prior taxes   Some eligible educational institutions combine all of their fees for an academic period into one amount. Prior taxes If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. Prior taxes The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. Prior taxes See Figuring the Credit , later, for more information about Form 1098-T. Prior taxes Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. Prior taxes This is a student who meets all of the following requirements. Prior taxes The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Prior taxes This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Prior taxes The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Prior taxes For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Prior taxes The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. Prior taxes These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Prior taxes Completion of first 4 years. Prior taxes   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. Prior taxes This student generally would not be an eligible student for purposes of the American opportunity credit. Prior taxes Exception. Prior taxes   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. Prior taxes Enrolled at least half-time. Prior taxes   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Prior taxes   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Prior taxes However, the standard may not be lower than any of those established by the U. Prior taxes S. Prior taxes Department of Education under the Higher Education Act of 1965. Prior taxes Please click here for the text description of the image. Prior taxes Figure 2-2 Example 1. Prior taxes Mack graduated from high school in June 2012. Prior taxes In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. Prior taxes For the 2013 fall semester, Mack was enrolled less than half-time. Prior taxes Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). Prior taxes Example 2. Prior taxes After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. Prior taxes College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. Prior taxes Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. Prior taxes Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. Prior taxes Example 3. Prior taxes During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Prior taxes Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Prior taxes Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Prior taxes Example 4. Prior taxes The facts are the same as in Example 3. Prior taxes During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Prior taxes Larry graduated from high school in June 2013. Prior taxes For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. Prior taxes Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. Prior taxes Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. Prior taxes Example 5. Prior taxes Dee graduated from high school in June 2012. Prior taxes In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. Prior taxes Dee completed the program in December 2013, and was awarded a certificate. Prior taxes In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. Prior taxes Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. Prior taxes Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. Prior taxes For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Prior taxes You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Prior taxes IF you. Prior taxes . Prior taxes . Prior taxes THEN only. Prior taxes . Prior taxes . Prior taxes claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. Prior taxes The dependent cannot claim the credit. Prior taxes do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. Prior taxes You cannot claim the credit based on this dependent's expenses. Prior taxes Expenses paid by dependent. Prior taxes   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Prior taxes Include these expenses when figuring the amount of your American opportunity credit. Prior taxes    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Prior taxes Expenses paid by you. Prior taxes   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. Prior taxes If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. Prior taxes Expenses paid by others. Prior taxes   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Prior taxes In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Prior taxes If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Prior taxes Example. Prior taxes In 2013, Ms. Prior taxes Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Prior taxes For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Prior taxes Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. Prior taxes If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. Prior taxes If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Prior taxes Tuition reduction. Prior taxes    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Prior taxes If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Prior taxes For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Prior taxes Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. Prior taxes The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Prior taxes You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Prior taxes However, the credit may be reduced based on your MAGI. Prior taxes See Effect of the Amount of Your Income on the Amount of Your Credit , later. Prior taxes Example. Prior taxes Jack and Kay Ford are married and file a joint tax return. Prior taxes For 2013, they claim an exemption for their dependent daughter on their tax return. Prior taxes Their MAGI is $70,000. Prior taxes Their daughter is in her junior (third) year of studies at the local university. Prior taxes Jack and Kay paid qualified education expenses of $4,300 in 2013. Prior taxes Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Prior taxes Jack and Kay can claim a $2,500 American opportunity credit in 2013. Prior taxes This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Prior taxes Form 1098-T. Prior taxes   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Prior taxes Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Prior taxes An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Prior taxes However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Prior taxes When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Prior taxes   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Prior taxes    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. Prior taxes Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Prior taxes You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). Prior taxes Modified adjusted gross income (MAGI). Prior taxes   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Prior taxes MAGI when using Form 1040A. Prior taxes   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Prior taxes MAGI when using Form 1040. Prior taxes   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Prior taxes You can use Worksheet 2-1, next, to figure your MAGI. Prior taxes    Worksheet 2-1. Prior taxes MAGI for the American Opportunity Credit 1. Prior taxes Enter your adjusted gross income  (Form 1040, line 38)   1. Prior taxes   2. Prior taxes Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Prior taxes       3. Prior taxes Enter your foreign housing deduction (Form 2555, line 50)   3. Prior taxes       4. Prior taxes Enter the amount of income from Puerto Rico you are excluding   4. Prior taxes       5. Prior taxes Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Prior taxes       6. Prior taxes Add the amounts on lines 2, 3, 4, and 5   6. Prior taxes   7. Prior taxes Add the amounts on lines 1 and 6. Prior taxes  This is your modified adjusted  gross income. Prior taxes Enter here and  on Form 8863, line 3   7. Prior taxes   Phaseout. Prior taxes   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. Prior taxes The same method is shown in the following example. Prior taxes Example. Prior taxes You are filing a joint return and your MAGI is $165,000. Prior taxes In 2013, you paid $5,000 of qualified education expenses. Prior taxes You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). Prior taxes Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. Prior taxes The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Prior taxes The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Prior taxes The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Prior taxes      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. Prior taxes However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Prior taxes Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Prior taxes You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Prior taxes You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). Prior taxes At least one of your parents was alive at the end of 2013. Prior taxes You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Prior taxes Earned income. Prior taxes   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Prior taxes Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. Prior taxes Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Prior taxes   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). Prior taxes However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Prior taxes Support. Prior taxes   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Prior taxes Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Prior taxes If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. Prior taxes However, a scholarship received by you is not considered support if you are a full-time student. Prior taxes See Publication 501 for details. Prior taxes Full-time student. Prior taxes   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. Prior taxes Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Prior taxes Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Prior taxes Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Prior taxes A filled-in Form 8863 is shown at the end of this publication. Prior taxes Note. Prior taxes In Appendix A. Prior taxes at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Prior taxes Prev  Up  Next   Home   More Online Publications
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The Prior Taxes

Prior taxes 1. Prior taxes   Travel Table of Contents Traveling Away From HomeTax Home Tax Home Different From Family Home Temporary Assignment or Job What Travel Expenses Are Deductible?Employee. Prior taxes Business associate. Prior taxes Bona fide business purpose. Prior taxes Meals Travel in the United States Travel Outside the United States Luxury Water Travel Conventions If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. Prior taxes This chapter discusses: Traveling away from home, Temporary assignment or job, and What travel expenses are deductible. Prior taxes It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses. Prior taxes Travel expenses defined. Prior taxes   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Prior taxes   An ordinary expense is one that is common and accepted in your trade or business. Prior taxes A necessary expense is one that is helpful and appropriate for your business. Prior taxes An expense does not have to be required to be considered necessary. Prior taxes   You will find examples of deductible travel expenses in Table 1-1 , later. Prior taxes Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Prior taxes This rest requirement is not satisfied by merely napping in your car. Prior taxes You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Prior taxes Example 1. Prior taxes You are a railroad conductor. Prior taxes You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Prior taxes During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Prior taxes You are considered to be away from home. Prior taxes Example 2. Prior taxes You are a truck driver. Prior taxes You leave your terminal and return to it later the same day. Prior taxes You get an hour off at your turnaround point to eat. Prior taxes Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Prior taxes Members of the Armed Forces. Prior taxes   If you are a member of the U. Prior taxes S. Prior taxes Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Prior taxes You cannot deduct your expenses for meals and lodging. Prior taxes You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Prior taxes If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Prior taxes   A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes. Prior taxes Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Prior taxes Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Prior taxes It includes the entire city or general area in which your business or work is located. Prior taxes If you have more than one regular place of business, your tax home is your main place of business. Prior taxes See Main place of business or work , later. Prior taxes If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Prior taxes See No main place of business or work , later. Prior taxes If you do not have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Prior taxes As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Prior taxes Main place of business or work. Prior taxes   If you have more than one place of work, consider the following when determining which one is your main place of business or work. Prior taxes The total time you ordinarily spend in each place. Prior taxes The level of your business activity in each place. Prior taxes Whether your income from each place is significant or insignificant. Prior taxes Example. Prior taxes You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Prior taxes You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Prior taxes Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Prior taxes No main place of business or work. Prior taxes   You may have a tax home even if you do not have a regular or main place of work. Prior taxes Your tax home may be the home where you regularly live. Prior taxes Factors used to determine tax home. Prior taxes   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Prior taxes You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Prior taxes You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Prior taxes You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Prior taxes   If you satisfy all three factors, your tax home is the home where you regularly live. Prior taxes If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Prior taxes If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Prior taxes Example 1. Prior taxes You are single and live in Boston in an apartment you rent. Prior taxes You have worked for your employer in Boston for a number of years. Prior taxes Your employer enrolls you in a 12-month executive training program. Prior taxes You do not expect to return to work in Boston after you complete your training. Prior taxes During your training, you do not do any work in Boston. Prior taxes Instead, you receive classroom and on-the-job training throughout the United States. Prior taxes You keep your apartment in Boston and return to it frequently. Prior taxes You use your apartment to conduct your personal business. Prior taxes You also keep up your community contacts in Boston. Prior taxes When you complete your training, you are transferred to Los Angeles. Prior taxes You do not satisfy factor (1) because you did not work in Boston. Prior taxes You satisfy factor (2) because you had duplicate living expenses. Prior taxes You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Prior taxes Therefore, you have a tax home in Boston. Prior taxes Example 2. Prior taxes You are an outside salesperson with a sales territory covering several states. Prior taxes Your employer's main office is in Newark, but you do not conduct any business there. Prior taxes Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. Prior taxes You have a room in your married sister's house in Dayton. Prior taxes You stay there for one or two weekends a year, but you do no work in the area. Prior taxes You do not pay your sister for the use of the room. Prior taxes You do not satisfy any of the three factors listed earlier. Prior taxes You are an itinerant and have no tax home. Prior taxes Tax Home Different From Family Home If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Prior taxes You also cannot deduct the cost of meals and lodging while at your tax home. Prior taxes See Example 1 , later. Prior taxes If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Prior taxes See Example 2 , later. Prior taxes Example 1. Prior taxes You are a truck driver and you and your family live in Tucson. Prior taxes You are employed by a trucking firm that has its terminal in Phoenix. Prior taxes At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Prior taxes You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Prior taxes This is because Phoenix is your tax home. Prior taxes Example 2. Prior taxes Your family home is in Pittsburgh, where you work 12 weeks a year. Prior taxes The rest of the year you work for the same employer in Baltimore. Prior taxes In Baltimore, you eat in restaurants and sleep in a rooming house. Prior taxes Your salary is the same whether you are in Pittsburgh or Baltimore. Prior taxes Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Prior taxes You cannot deduct any expenses you have for meals and lodging there. Prior taxes However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Prior taxes You can deduct the cost of your round trip between Baltimore and Pittsburgh. Prior taxes You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Prior taxes Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Prior taxes It may not be practical to return to your tax home from this other location at the end of each work day. Prior taxes Temporary assignment vs. Prior taxes indefinite assignment. Prior taxes   If your assignment or job away from your main place of work is temporary, your tax home does not change. Prior taxes You are considered to be away from home for the whole period you are away from your main place of work. Prior taxes You can deduct your travel expenses if they otherwise qualify for deduction. Prior taxes Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Prior taxes    However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Prior taxes An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Prior taxes   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Prior taxes You may be able to deduct the cost of relocating to your new tax home as a moving expense. Prior taxes See Publication 521 for more information. Prior taxes Exception for federal crime investigations or prosecutions. Prior taxes   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Prior taxes This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility. Prior taxes   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. Prior taxes Determining temporary or indefinite. Prior taxes   You must determine whether your assignment is temporary or indefinite when you start work. Prior taxes If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Prior taxes An assignment or job that is initially temporary may become indefinite due to changed circumstances. Prior taxes A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Prior taxes   The following examples illustrate whether an assignment or job is temporary or indefinite. Prior taxes Example 1. Prior taxes You are a construction worker. Prior taxes You live and regularly work in Los Angeles. Prior taxes You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Prior taxes Your tax home is Los Angeles. Prior taxes Because of a shortage of work, you took a job on a construction project in Fresno. Prior taxes Your job was scheduled to end in 8 months. Prior taxes The job actually lasted 10 months. Prior taxes You realistically expected the job in Fresno to last 8 months. Prior taxes The job actually did last less than 1 year. Prior taxes The job is temporary and your tax home is still in Los Angeles. Prior taxes Example 2. Prior taxes The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. Prior taxes The job actually was completed in 10 months. Prior taxes Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. Prior taxes You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. Prior taxes Example 3. Prior taxes The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. Prior taxes After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). Prior taxes Initially, you realistically expected the job in Fresno to last for only 9 months. Prior taxes However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. Prior taxes You can only deduct your travel expenses for the first 8 months. Prior taxes You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. Prior taxes Going home on days off. Prior taxes   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Prior taxes You cannot deduct the cost of your meals and lodging there. Prior taxes However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Prior taxes You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Prior taxes   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Prior taxes In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Prior taxes Probationary work period. Prior taxes   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Prior taxes You cannot deduct any of your expenses for meals and lodging during the probationary period. Prior taxes What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Prior taxes You can deduct ordinary and necessary expenses you have when you travel away from home on business. Prior taxes The type of expense you can deduct depends on the facts and your circumstances. Prior taxes Table 1-1 summarizes travel expenses you may be able to deduct. Prior taxes You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Prior taxes When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Prior taxes You can use a log, diary, notebook, or any other written record to keep track of your expenses. Prior taxes The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5). Prior taxes Separating costs. Prior taxes   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Prior taxes You must have a reasonable basis for making this allocation. Prior taxes For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Prior taxes Travel expenses for another individual. Prior taxes    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Prior taxes Employee. Prior taxes   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Prior taxes Business associate. Prior taxes   If a business associate travels with you and meets the conditions in (2) and (3), earlier, you can deduct the travel expenses you have for that person. Prior taxes A business associate is someone with whom you could reasonably expect to actively conduct business. Prior taxes A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Prior taxes Bona fide business purpose. Prior taxes   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Prior taxes Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Prior taxes Table 1-1. Prior taxes Travel Expenses You Can Deduct   This chart summarizes expenses you can deduct when you travel away from home for business purposes. Prior taxes IF you have expenses for. Prior taxes . Prior taxes . Prior taxes THEN you can deduct the cost of. Prior taxes . Prior taxes . Prior taxes transportation travel by airplane, train, bus, or car between your home and your business destination. Prior taxes If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Prior taxes If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits. Prior taxes taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Prior taxes baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Prior taxes car operating and maintaining your car when traveling away from home on business. Prior taxes You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. Prior taxes If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Prior taxes lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Prior taxes Meals include amounts spent for food, beverages, taxes, and related tips. Prior taxes See Meals for additional rules and limits. Prior taxes cleaning dry cleaning and laundry. Prior taxes telephone business calls while on your business trip. Prior taxes This includes business communication by fax machine or other communication devices. Prior taxes tips tips you pay for any expenses in this chart. Prior taxes other other similar ordinary and necessary expenses related to your business travel. Prior taxes These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Prior taxes Example. Prior taxes Jerry drives to Chicago on business and takes his wife, Linda, with him. Prior taxes Linda is not Jerry's employee. Prior taxes Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Prior taxes The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Prior taxes Her expenses are not deductible. Prior taxes Jerry pays $199 a day for a double room. Prior taxes A single room costs $149 a day. Prior taxes He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Prior taxes If he uses public transportation, he can deduct only his fare. Prior taxes Meals You can deduct the cost of meals in either of the following situations. Prior taxes It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Prior taxes The meal is business-related entertainment. Prior taxes Business-related entertainment is discussed in chapter 2 . Prior taxes The following discussion deals only with meals that are not business-related entertainment. Prior taxes Lavish or extravagant. Prior taxes   You cannot deduct expenses for meals that are lavish or extravagant. Prior taxes An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Prior taxes Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Prior taxes 50% limit on meals. Prior taxes   You can figure your meals expense using either of the following methods. Prior taxes Actual cost. Prior taxes The standard meal allowance. Prior taxes Both of these methods are explained below. Prior taxes But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Prior taxes   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Prior taxes If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Prior taxes Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. Prior taxes Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Prior taxes If you use this method, you must keep records of your actual cost. Prior taxes Standard Meal Allowance Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Prior taxes It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Prior taxes The set amount varies depending on where and when you travel. Prior taxes In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Prior taxes If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Prior taxes See the recordkeeping rules for travel in chapter 5 . Prior taxes Incidental expenses. Prior taxes   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Prior taxes   Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Prior taxes Incidental-expenses-only method. Prior taxes   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Prior taxes The amount of the deduction is $5 a day. Prior taxes You can use this method only if you did not pay or incur any meal expenses. Prior taxes You cannot use this method on any day that you use the standard meal allowance. Prior taxes This method is subject to the proration rules for partial days. Prior taxes See Travel for days you depart and return , later in this chapter. Prior taxes Note. Prior taxes The incidental-expenses-only method is not subject to the 50% limit discussed below. Prior taxes Federal employees should refer to the Federal Travel Regulations at www. Prior taxes gsa. Prior taxes gov. Prior taxes Find the “Most Requested Links” on the upper left and click on “Regulations: FAR, FMR, FTR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Prior taxes 50% limit may apply. Prior taxes   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Prior taxes If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Prior taxes The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6. Prior taxes There is no optional standard lodging amount similar to the standard meal allowance. Prior taxes Your allowable lodging expense deduction is your actual cost. Prior taxes Who can use the standard meal allowance. Prior taxes   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Prior taxes Use of the standard meal allowance for other travel. Prior taxes   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Prior taxes You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Prior taxes You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Prior taxes Amount of standard meal allowance. Prior taxes   The standard meal allowance is the federal M&IE rate. Prior taxes For travel in 2013, the rate for most small localities in the United States is $46 a day. Prior taxes    Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Prior taxes    You can find this information (organized by state) on the Internet at www. Prior taxes gsa. Prior taxes gov/perdiem. Prior taxes Enter a zip code or select a city and state for the per diem rates for the current fiscal year. Prior taxes Per diem rates for prior fiscal years are available by using the drop down menu under “Search by State. Prior taxes ”   Per diem rates are listed by the Federal government's fiscal year which runs from October 1 to September 30. Prior taxes You can choose to use the rates from the 2013 fiscal year per diem tables or the rates from the 2014 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. Prior taxes   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Prior taxes If you work in the transportation industry, however, see Special rate for transportation workers , later. Prior taxes Standard meal allowance for areas outside the continental United States. Prior taxes   The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Prior taxes The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Prior taxes S. Prior taxes Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Prior taxes The Department of State establishes per diem rates for all other foreign areas. Prior taxes    You can access per diem rates for non-foreign areas outside the continental United States at: www. Prior taxes defensetravel. Prior taxes dod. Prior taxes mil/site/perdiemCalc. Prior taxes cfm. Prior taxes You can access all other foreign per diem rates at: www. Prior taxes state. Prior taxes gov/travel/. Prior taxes Click on “Travel Per Diem Allowances for Foreign Areas,” under “Foreign Per Diem Rates” to obtain the latest foreign per diem rates. Prior taxes Special rate for transportation workers. Prior taxes   You can use a special standard meal allowance if you work in the transportation industry. Prior taxes You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Prior taxes If this applies to you, you can claim a standard meal allowance of $59 a day ($65 for travel outside the continental United States). Prior taxes   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Prior taxes If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Prior taxes Travel for days you depart and return. Prior taxes   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Prior taxes You can do so by one of two methods. Prior taxes Method 1: You can claim 3/4 of the standard meal allowance. Prior taxes Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Prior taxes Example. Prior taxes Jen is employed in New Orleans as a convention planner. Prior taxes In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Prior taxes She left her home in New Orleans at 10 a. Prior taxes m. Prior taxes on Wednesday and arrived in Washington, DC, at 5:30 p. Prior taxes m. Prior taxes After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Prior taxes m. Prior taxes Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Prior taxes Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Prior taxes Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Prior taxes For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Prior taxes Travel in the United States The following discussion applies to travel in the United States. Prior taxes For this purpose, the United States includes the 50 states and the District of Columbia. Prior taxes The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Prior taxes See Part of Trip Outside the United States , later. Prior taxes Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. Prior taxes If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. Prior taxes These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Prior taxes Example. Prior taxes You work in Atlanta and take a business trip to New Orleans in May. Prior taxes Your business travel totals 850 miles round trip. Prior taxes On your way, you stop in Mobile to visit your parents. Prior taxes You spend $2,120 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Prior taxes If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,820. Prior taxes You can deduct $1,820 for your trip, including the cost of round-trip transportation to and from New Orleans. Prior taxes The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Prior taxes Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Prior taxes However, you can deduct any expenses you have while at your destination that are directly related to your business. Prior taxes A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Prior taxes The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Prior taxes Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. Prior taxes For the part of your trip that is inside the United States, use the rules for travel in the United States. Prior taxes Travel outside the United States does not include travel from one point in the United States to another point in the United States. Prior taxes The following discussion can help you determine whether your trip was entirely within the United States. Prior taxes Public transportation. Prior taxes   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Prior taxes Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Prior taxes Example. Prior taxes You fly from New York to Puerto Rico with a scheduled stop in Miami. Prior taxes You return to New York nonstop. Prior taxes The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Prior taxes Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Prior taxes Private car. Prior taxes   Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States. Prior taxes Example. Prior taxes You travel by car from Denver to Mexico City and return. Prior taxes Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Prior taxes The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Prior taxes Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Prior taxes For this purpose, the United States includes the 50 states and the District of Columbia. Prior taxes How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Prior taxes Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Prior taxes Travel entirely for business. Prior taxes   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Prior taxes Travel considered entirely for business. Prior taxes   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Prior taxes Exception 1 - No substantial control. Prior taxes   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Prior taxes The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Prior taxes   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, and Are not related to your employer, or Are not a managing executive. Prior taxes    “Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances . Prior taxes   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Prior taxes   A self-employed person generally has substantial control over arranging business trips. Prior taxes Exception 2 - Outside United States no more than a week. Prior taxes   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Prior taxes One week means 7 consecutive days. Prior taxes In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Prior taxes Example. Prior taxes You traveled to Brussels primarily for business. Prior taxes You left Denver on Tuesday and flew to New York. Prior taxes On Wednesday, you flew from New York to Brussels, arriving the next morning. Prior taxes On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. Prior taxes You flew back to New York, arriving Wednesday afternoon. Prior taxes On Thursday, you flew back to Denver. Prior taxes Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. Prior taxes This is because the day you depart does not count as a day outside the United States. Prior taxes You can deduct your cost of the round-trip flight between Denver and Brussels. Prior taxes You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. Prior taxes However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. Prior taxes Exception 3 - Less than 25% of time on personal activities. Prior taxes   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Prior taxes For this purpose, count both the day your trip began and the day it ended. Prior taxes Example. Prior taxes You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. Prior taxes You then flew back to Seattle. Prior taxes You spent 1 day flying in each direction. Prior taxes Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. Prior taxes The amount you can deduct is the cost of the round-trip plane fare and 16 days of meals (subject to the 50% limit), lodging, and other related expenses. Prior taxes Exception 4 - Vacation not a major consideration. Prior taxes   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Prior taxes Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. Prior taxes You can only deduct the business portion of your cost of getting to and from your destination. Prior taxes You must allocate the costs between your business and other activities to determine your deductible amount. Prior taxes See Travel allocation rules , later. Prior taxes You do not have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business . Prior taxes In those cases, you can deduct the total cost of getting to and from your destination. Prior taxes Travel allocation rules. Prior taxes   If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. Prior taxes The days you depart from and return to the United States are both counted as days outside the United States. Prior taxes   To figure the deductible amount of your round-trip travel expenses, use the following fraction. Prior taxes The numerator (top number) is the total number of business days outside the United States. Prior taxes The denominator (bottom number) is the total number of business and nonbusiness days of travel. Prior taxes Counting business days. Prior taxes   Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays. Prior taxes Transportation day. Prior taxes   Count as a business day any day you spend traveling to or from a business destination. Prior taxes However, if because of a nonbusiness activity you do not travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. Prior taxes Extra days for side trips or nonbusiness activities cannot be counted as business days. Prior taxes Presence required. Prior taxes   Count as a business day any day your presence is required at a particular place for a specific business purpose. Prior taxes Count it as a business day even if you spend most of the day on nonbusiness activities. Prior taxes Day spent on business. Prior taxes   If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. Prior taxes Also, count as a business day any day you are prevented from working because of circumstances beyond your control. Prior taxes Certain weekends and holidays. Prior taxes   Count weekends, holidays, and other necessary standby days as business days if they fall between business days. Prior taxes But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, do not count them as business days. Prior taxes Example 1. Prior taxes Your tax home is New York City. Prior taxes You travel to Quebec, where you have a business appointment on Friday. Prior taxes You have another appointment on the following Monday. Prior taxes Because your presence was required on both Friday and Monday, they are business days. Prior taxes Because the weekend is between business days, Saturday and Sunday are counted as business days. Prior taxes This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. Prior taxes Example 2. Prior taxes If, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. Prior taxes Nonbusiness activity on the way to or from your business destination. Prior taxes   If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Prior taxes   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. Prior taxes   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Prior taxes The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Prior taxes Example. Prior taxes You live in New York. Prior taxes On May 4 you flew to Paris to attend a business conference that began on May 5. Prior taxes The conference ended at noon on May 14. Prior taxes That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. Prior taxes The primary purpose for the trip was to attend the conference. Prior taxes If you had not stopped in Dublin, you would have arrived home the evening of May 14. Prior taxes You do not meet any of the exceptions that would allow you to consider your travel entirely for business. Prior taxes May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days. Prior taxes You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris. Prior taxes You cannot deduct your expenses while in Dublin. Prior taxes You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin. Prior taxes You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. Prior taxes Round-trip airfare from New York to Dublin would have been $1,250. Prior taxes You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7/18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850). Prior taxes Your deductible air travel expense is $1,364 ($1,850 − $486). Prior taxes Nonbusiness activity at, near, or beyond business destination. Prior taxes   If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Prior taxes   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. Prior taxes   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Prior taxes The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Prior taxes   None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible. Prior taxes Example. Prior taxes Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation. Prior taxes You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. Prior taxes In addition, you cannot deduct 7/18 of the airfare and other expenses from New York to Paris and back to New York. Prior taxes You can deduct 11/18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your meals (subject to the 50% limit), lodging, and any other business expenses you had in Paris. Prior taxes (Assume these expenses total $4,939. Prior taxes ) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 (11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris. Prior taxes Other methods. Prior taxes   You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States. Prior taxes Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Prior taxes However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Prior taxes Example. Prior taxes The university from which you graduated has a continuing education program for members of its alumni association. Prior taxes This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. Prior taxes However, none of the conferences are directed toward specific occupations or professions. Prior taxes It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests. Prior taxes Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. Prior taxes These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. Prior taxes Professional conference directors schedule and conduct the sessions. Prior taxes Participants can choose those sessions they wish to attend. Prior taxes You can participate in this program since you are a member of the alumni association. Prior taxes You and your family take one of the trips. Prior taxes You spend about 2 hours at each of the planned sessions. Prior taxes The rest of the time you go touring and sightseeing with your family. Prior taxes The trip lasts less than 1 week. Prior taxes Your travel expenses for the trip are not deductible since the trip was primarily a vacation. Prior taxes However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. Prior taxes These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses. Prior taxes Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. Prior taxes The limit is twice the highest federal per diem rate allowable at the time of your travel. Prior taxes (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes. Prior taxes ) Daily limit on luxury water travel. Prior taxes   The highest federal per diem rate allowed and the daily limit for luxury water travel in 2013 is shown in the following table. Prior taxes   2013 Dates Highest Federal Per Diem Daily Limit on Luxury Water Travel   Jan. Prior taxes 1 – Mar. Prior taxes 31 $367 $734   Apr. Prior taxes 1 – June 30 312 624   July 1 – Aug. Prior taxes 31 310 620   Sept. Prior taxes 1 – Sept. Prior taxes 30 366 732   Oct. Prior taxes 1 – Dec. Prior taxes 31 374 748 Example. Prior taxes Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. Prior taxes Her expense for the 6-day cruise was $5,200. Prior taxes Caroline's deduction for the cruise cannot exceed $3,744 (6 days × $624 daily limit). Prior taxes Meals and entertainment. Prior taxes   If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. Prior taxes For a discussion of the 50% Limit , see chapter 2. Prior taxes Example. Prior taxes In the previous example, Caroline's luxury water travel had a total cost of $5,200. Prior taxes Of that amount, $3,700 was separately stated as meals and entertainment. Prior taxes Caroline, who is self-employed, is not reimbursed for any of her travel expenses. Prior taxes Caroline figures her deductible travel expenses as follows. Prior taxes Meals and entertainment $3,700   50% limit × . Prior taxes 50   Allowable meals &     entertainment $1,850   Other travel expenses + 1,800   Allowable cost before the daily limit $3,650 Daily limit for May 2013 $624   Times number of days × 6   Maximum luxury water travel     deduction $3,744 Amount of allowable deduction $3,650 Caroline's deduction for her cruise is limited to $3,650, even though the limit on luxury water travel is slightly higher. Prior taxes Not separately stated. Prior taxes   If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment. Prior taxes Exceptions The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. Prior taxes See Cruise Ships under Conventions. Prior taxes Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Prior taxes You cannot deduct the travel expenses for your family. Prior taxes If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Prior taxes Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Prior taxes You can deduct your travel expenses only if your attendance is connected to your own trade or business. Prior taxes Convention agenda. Prior taxes   The convention agenda or program generally shows the purpose of the convention. Prior taxes You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Prior taxes The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Prior taxes Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless: The meeting is directly related to your trade or business, and It is reasonable to hold the meeting outside the North American area. Prior taxes See Reasonableness test , later. Prior taxes If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States . Prior taxes North American area. Prior taxes   The North American area includes the following locations. Prior taxes American Samoa Johnston Island Antigua and Barbuda Kingman Reef Aruba Marshall Islands Bahamas Mexico Baker Island Micronesia Barbados Midway Islands Bermuda Netherlands Antilles Canada Northern Mariana Costa Rica Islands Dominica Palau Dominican Republic Palmyra Atoll Grenada Panama Guam Puerto Rico Guyana Trinidad and Tobago Honduras USA Howland Island U. Prior taxes S. Prior taxes Virgin Islands Jamaica Wake Island Jarvis Island   The North American area also includes U. Prior taxes S. Prior taxes islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia. Prior taxes Reasonableness test. Prior taxes   The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. Prior taxes The purpose of the meeting and the activities taking place at the meeting. Prior taxes The purposes and activities of the sponsoring organizations or groups. Prior taxes The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held. Prior taxes Other relevant factors you may present. Prior taxes Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. Prior taxes All ships that sail are considered cruise ships. Prior taxes You can deduct these expenses only if all of the following requirements are met. Prior taxes The convention, seminar, or meeting is directly related to your trade or business. Prior taxes The cruise ship is a vessel registered in the United States. Prior taxes All of the cruise ship's ports of call are in the United States or in possessions of the United States. Prior taxes You attach to your return a written statement signed by you that includes information about: The total days of the trip (not including the days of transportation to and from the cruise ship port), The number of hours each day that you devoted to scheduled business activities, and A program of the scheduled business activities of the meeting. Prior taxes You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes: A schedule of the business activities of each day of the meeting, and The number of hours you attended the scheduled business activities. Prior taxes Prev  Up  Next   Home   More Online Publications