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State Tax Efile

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State Tax Efile

State tax efile 31. State tax efile   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. State tax efile Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. State tax efile Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. State tax efile Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. State tax efile . State tax efile  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). State tax efile NIIT is a 3. State tax efile 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. State tax efile Use Form 8960, Net Investment Income Tax, to figure this tax. State tax efile For more information on NIIT, go to www. State tax efile irs. State tax efile gov and enter “Net Investment Income Tax” in the search box. State tax efile Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. State tax efile If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. State tax efile (See Parent's Election To Report Child's Interest and Dividends , later. State tax efile ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. State tax efile (See Tax for Certain Children Who Have Unearned Income , later. State tax efile ) For these rules, the term “child” includes a legally adopted child and a stepchild. State tax efile These rules apply whether or not the child is a dependent. State tax efile Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. State tax efile The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . State tax efile Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. State tax efile Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . State tax efile Parents are married. State tax efile   If the child's parents file separate returns, use the return of the parent with the greater taxable income. State tax efile Parents not living together. State tax efile   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. State tax efile If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. State tax efile   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. State tax efile Parents are divorced. State tax efile   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. State tax efile Custodial parent remarried. State tax efile   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. State tax efile Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. State tax efile Do not use the return of the noncustodial parent. State tax efile   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. State tax efile If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. State tax efile Parents never married. State tax efile   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. State tax efile If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. State tax efile Widowed parent remarried. State tax efile   If a widow or widower remarries, the new spouse is treated as the child's other parent. State tax efile The rules explained earlier under Custodial parent remarried apply. State tax efile Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. State tax efile If you do, your child will not have to file a return. State tax efile You can make this election only if all the following conditions are met. State tax efile Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. State tax efile Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). State tax efile The child's gross income was less than $10,000. State tax efile The child is required to file a return unless you make this election. State tax efile The child does not file a joint return for the year. State tax efile No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. State tax efile No federal income tax was taken out of your child's income under the backup withholding rules. State tax efile You are the parent whose return must be used when applying the special tax rules for children. State tax efile (See Which Parent's Return To Use , earlier. State tax efile ) These conditions are also shown in Figure 31-A. State tax efile Certain January 1 birthdays. State tax efile   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. State tax efile You cannot make this election for such a child unless the child was a full-time student. State tax efile   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. State tax efile You cannot make this election for such a child. State tax efile Full-time student. State tax efile   A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. State tax efile A school includes a technical, trade, or mechanical school. State tax efile It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. State tax efile How to make the election. State tax efile   Make the election by attaching Form 8814 to your Form 1040. State tax efile (If you make this election, you cannot file Form 1040A or Form 1040EZ. State tax efile ) Attach a separate Form 8814 for each child for whom you make the election. State tax efile You can make the election for one or more children and not for others. State tax efile Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. State tax efile Rate may be higher. State tax efile   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. State tax efile This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. State tax efile However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. State tax efile Deductions you cannot take. State tax efile   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. State tax efile The additional standard deduction if the child is blind. State tax efile The deduction for a penalty on an early withdrawal of your child's savings. State tax efile Itemized deductions (such as your child's investment expenses or charitable contributions). State tax efile Reduced deductions or credits. State tax efile   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. State tax efile Deduction for contributions to a traditional individual retirement arrangement (IRA). State tax efile Deduction for student loan interest. State tax efile Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. State tax efile Credit for child and dependent care expenses. State tax efile Child tax credit. State tax efile Education tax credits. State tax efile Earned income credit. State tax efile Penalty for underpayment of estimated tax. State tax efile   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. State tax efile If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. State tax efile See chapter 4 for more information. State tax efile Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. State tax efile Only the amount over $2,000 is added to your income. State tax efile The amount over $2,000 is shown on Form 8814, line 6. State tax efile Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. State tax efile Include the amount from Form 8814, line 12, on Form 1040, line 21. State tax efile Enter “Form 8814” on the dotted line next to line 21. State tax efile If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. State tax efile Capital gain distributions and qualified dividends. State tax efile   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. State tax efile If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. State tax efile Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. State tax efile This tax is added to the tax figured on your income. State tax efile This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. State tax efile Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. State tax efile Check box a on Form 1040, line 44. State tax efile Figure 31-A. State tax efile Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. State tax efile Figure 31–A. State tax efile Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. State tax efile If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. State tax efile Attach the completed form to the child's Form 1040 or Form 1040A. State tax efile When Form 8615 must be filed. State tax efile   Form 8615 must be filed for a child if all of the following statements are true. State tax efile The child's investment income was more than $2,000. State tax efile The child is required to file a return for 2013. State tax efile The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. State tax efile At least one of the child's parents was alive at the end of 2013. State tax efile The child does not file a joint return for 2013. State tax efile These conditions are also shown in  Figure 31-B. State tax efile Earned income. State tax efile   Earned income includes salaries, wages, tips, and other payments received for personal services performed. State tax efile It does not include unearned income as defined later in this chapter. State tax efile Support. State tax efile   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. State tax efile To figure your child's support, count support provided by you, your child, and others. State tax efile However, a scholarship received by your child is not considered support if your child is a full-time student. State tax efile See chapter 3 for details about support. State tax efile Certain January 1 birthdays. State tax efile   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. State tax efile Figure 31-B. State tax efile Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. State tax efile Figure 31-B. State tax efile Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. State tax efile . State tax efile . State tax efile THEN, at the end of 2013, the child is considered to be. State tax efile . State tax efile . State tax efile January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. State tax efile The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. State tax efile  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. State tax efile  ***Do not use Form 8615 for this child. State tax efile Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. State tax efile (If the parents filed a joint return, enter the name and social security number listed first on the joint return. State tax efile ) On line C, check the box for the parent's filing status. State tax efile See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. State tax efile Parent with different tax year. State tax efile   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. State tax efile Parent's return information not known timely. State tax efile   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. State tax efile   You can use any reasonable estimate. State tax efile This includes using information from last year's return. State tax efile If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. State tax efile    When you get the correct information, file an amended return on Form 1040X, Amended U. State tax efile S. State tax efile Individual Income Tax Return. State tax efile   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. State tax efile S. State tax efile Individual Income Tax Return. State tax efile Extensions are discussed in chapter 1. State tax efile Step 1. State tax efile Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. State tax efile To do that, use Form 8615, Part I. State tax efile Line 1 (unearned income). State tax efile   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. State tax efile Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. State tax efile Form 1040EZ cannot be used if Form 8615 must be filed. State tax efile   If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. State tax efile   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. State tax efile Unearned income defined. State tax efile   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. State tax efile It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. State tax efile Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). State tax efile Nontaxable income. State tax efile   For this purpose, unearned income includes only amounts the child must include in total income. State tax efile Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. State tax efile Income from property received as a gift. State tax efile   A child's unearned income includes all income produced by property belonging to the child. State tax efile This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. State tax efile   A child's unearned income includes income produced by property given as a gift to the child. State tax efile This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. State tax efile Example. State tax efile Amanda Black, age 13, received the following income. State tax efile Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. State tax efile Amanda's unearned income is $2,100. State tax efile This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). State tax efile Her wages are earned (not unearned) income because they are received for work actually done. State tax efile Her tax-exempt interest is not included because it is nontaxable. State tax efile Trust income. State tax efile   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. State tax efile   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. State tax efile Line 2 (deductions). State tax efile   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. State tax efile   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. State tax efile Directly connected. State tax efile   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. State tax efile These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. State tax efile   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). State tax efile Only the amount greater than 2% of the child's adjusted gross income can be deducted. State tax efile See chapter 28 for more information. State tax efile Example 1. State tax efile Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. State tax efile His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. State tax efile Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. State tax efile Example 2. State tax efile Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. State tax efile She has no other income. State tax efile She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. State tax efile Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). State tax efile The amount on line 2 is $2,050. State tax efile This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. State tax efile Line 3. State tax efile   Subtract line 2 from line 1 and enter the result on this line. State tax efile If zero or less, do not complete the rest of the form. State tax efile However, you must still attach Form 8615 to the child's tax return. State tax efile Figure the tax on the child's taxable income in the normal manner. State tax efile Line 4 (child's taxable income). State tax efile   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. State tax efile   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. State tax efile 929. State tax efile Line 5 (net unearned income). State tax efile   A child's net unearned income cannot be more than his or her taxable income. State tax efile Enter on Form 8615, line 5, the smaller of line 3 or line 4. State tax efile This is the child's net unearned income. State tax efile   If zero or less, do not complete the rest of the form. State tax efile However, you must still attach Form 8615 to the child's tax return. State tax efile Figure the tax on the child's taxable income in the normal manner. State tax efile Step 2. State tax efile Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. State tax efile The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. State tax efile When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. State tax efile For example, do not refigure the medical expense deduction. State tax efile Figure the tentative tax on Form 8615, lines 6 through 13. State tax efile Note. State tax efile If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. State tax efile Line 6 (parent's taxable income). State tax efile   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. State tax efile   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. State tax efile Line 7 (net unearned income of other children). State tax efile   If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. State tax efile Do not include the amount from line 5 of the Form 8615 being completed. State tax efile Example. State tax efile Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. State tax efile The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. State tax efile Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). State tax efile Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). State tax efile Other children's information not available. State tax efile   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. State tax efile See Parent's return information not known timely , earlier. State tax efile Line 11 (tentative tax). State tax efile   Subtract line 10 from line 9 and enter the result on this line. State tax efile This is the tentative tax. State tax efile   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. State tax efile Also skip the discussion for lines 12a and 12b that follows. State tax efile Lines 12a and 12b (dividing the tentative tax). State tax efile   If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. State tax efile This is done on lines 12a, 12b, and 13. State tax efile Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. State tax efile Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. State tax efile Example. State tax efile In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. State tax efile The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). State tax efile The decimal on line 12b is  . State tax efile 333, figured as follows and rounded to three places. State tax efile   $800 = . State tax efile 333     $2,400   Step 3. State tax efile Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. State tax efile This is the child's tax. State tax efile It is figured on Form 8615, lines 14 through 18. State tax efile Alternative minimum tax. State tax efile   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. State tax efile See Alternative Minimum Tax (AMT) in chapter 30. State tax efile    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. State tax efile For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. State tax efile Prev  Up  Next   Home   More Online Publications
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CP 57 - Notice of Insufficient Funds

Details About This Notice:
Sample Content: Page 1
Purpose:   We send a CP 57 to inform the recipient that we're assessing a penalty for insufficient funds on their account.
Reason for Issuance:   When we attempted to withdraw the agreed upon installment amount from the recipient's bank account, we were notified that there were insuffient funds available. We send this notice to inform the recipient that we're charging them a penalty for insufficient funds and to explain what will happen if this recurs.
     
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The State Tax Efile

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