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Tax chart Publication 557 - Introductory Material Table of Contents What's New Reminders Introduction What's New Proposed regulations on “good faith determinations”. Tax chart  Proposed regulations modify standards for making a good faith determination that a foreign organization is a charitable organization, grants to which may be qualifying distributions and not taxable expenditures. Tax chart The proposed regulations identify a broader class of tax practitioners upon whose written advice a private foundation may base a “good faith determination. Tax chart ” See, Proposed Regulations: Reliance Standards for Making Good Faith Determinations, REG-134974-12, 2012-47 I. Tax chart R. Tax chart B. Tax chart 553. Tax chart Prop. Tax chart Regs. Tax chart on Good Faith Determinations. Tax chart New Requirements for section 501(c)(3) Hospitals Under the Affordable Care Act. Tax chart  The Affordable Care Act (ACA), enacted March 23, 2010, added new requirements that hospital organizations must satisfy in order to be described in section 501(c)(3), as well as new reporting requirements and excise taxes. Tax chart On June 22, 2012, the Service issued a notice of proposed rulemaking that addresses the new requirements enacted by the ACA applicable to section 501(c)(3) hospital organizations. Tax chart See, Proposed Regulations: Additional Requirements for Charitable Hospitals, REG-13026-11, 77 Fed. Tax chart Reg. Tax chart 38148. Tax chart On April 3, 2013, the Service issued proposed regulations on the ACA's community health needs assessment (CHNA) requirements. Tax chart The proposed regulations also discuss the related reporting and excise tax requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. Tax chart See, Proposed Regulations: Community Health Needs Assessments for Charitable Hospitals, REG-106499-12, 78 Fed. Tax chart Reg. Tax chart 20,523. Tax chart Timing of when an Organization is exempt for Federal Tax Purposes. Tax chart  As noted in section 2. Tax chart 03(4) of Revenue Procedure 2013-9, 2013-2 I. Tax chart R. Tax chart B. Tax chart 267, the provisions in section 11. Tax chart 01 regarding the effect of determination letters or rulings recognizing exempt status of organizations described in section 501(c), other than sections 501(c)(3), (9), (17), and (29), have been revised. Tax chart Prior to this year, and back to 1962, when such organizations applied for recognition, the IRS would usually recognize the organizations as tax exempt from the date of formation, no matter how long the interval between the date of formation and the date of application. Tax chart In addition to the practical difficulties of ascertaining an organization's purposes and activities for this period, such recognition is now potentially inconsistent with the provisions of section 6033(j), which automatically revokes the exempt status of an organization that fails to file required Form 990 series returns or notices for three consecutive years. Tax chart The new procedure adopts a practice similar to the rule for section 501(c)(3) organizations for these organizations, generally permitting recognition from the date of formation if the organization has: always met the requirements for exemption, has applied within 27 months from the end of the month in which it was organized, and has not failed to file required Form 990 series returns or notices for three consecutive years. Tax chart Section 11. Tax chart 01(3) notes: an organization that otherwise meets the requirements for tax-exempt status and the issuance of a determination letter or ruling that does not meet the requirements for recognition from date of formation will generally be recognized from the postmark date of its application. Tax chart Exempt Organizations Select Check. Tax chart  The IRS has developed an on-line search tool, Exempt Organizations Select Check, that allows users to select an exempt organization and check certain information about its federal tax status and filings. Tax chart It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that: Are eligible to receive tax-deductible charitable contributions (Publication 78 data). Tax chart Users may rely on this list in determining deductibility of contributions, just as they did when Publication 78 was a separate electronic publication rather than part of Select Check. Tax chart Have had their tax-exempt status automatically revoked under the law because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List). Tax chart Have filed a Form 990-N (e-Postcard) annual electronic notice. Tax chart  In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check. Tax chart See also Revenue Procedure 2011-33, 2011-25 I. Tax chart R. Tax chart B. Tax chart 887. Tax chart Future developments. Tax chart . Tax chart  The IRS has created a page on IRS. Tax chart gov for information about Publication 557, at www. Tax chart irs. Tax chart gov/pub557. Tax chart Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page. Tax chart Reminders The Patient Protection and Affordable Care Act (ACA). Tax chart   The ACA added several new laws. Tax chart This includes a new excise tax on indoor tanning services, a small business health care tax credit, additional requirements for tax-exempt hospitals, and the section 501(c)(29) CO-OP program. Tax chart For more information, go to IRS. Tax chart gov and select Affordable Care Act Tax Provisions. Tax chart Electronic filing requirement for large organizations. Tax chart  For tax years ending on or after December 31, 2006, only organizations that file 250 returns during the calendar year and that have total assets of $10 million or more are required to file Form 990 electronically. Tax chart For more information, go to e-file for Charities and Non-Profits. Tax chart Section 501(c)(15) gross receipts. Tax chart   The definition of gross receipts for purposes of determining whether small insurance companies qualify as tax-exempt under section 501(c)(15) has changed. Tax chart See Notice 2006-42, 2006-19 I. Tax chart R. Tax chart B. Tax chart 878, Notice 2006-42. Tax chart Prohibited tax shelter transactions. Tax chart  New excise taxes are imposed under section 4965 on certain tax-exempt organizations entering into prohibited tax shelter transactions. Tax chart See T. Tax chart D. Tax chart 9492, Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirements, 2010-33 I. Tax chart R. Tax chart B. Tax chart 242. Tax chart See IRS Issues Final Regulations Regarding Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirement. Tax chart Pension Protection Act of 2006 tax changes. Tax chart  The Pension Protection Act of 2006 made numerous changes to the tax law provisions affecting tax-exempt organizations. Tax chart Unless otherwise noted, most of the changes became effective on August 17, 2006. Tax chart For key provisions, go to The Pension Protection Act of 2006. Tax chart Section 501(c)(3) organizations must make their Form 990-T, Exempt Organization Business Tax Return (and proxy tax under section 6033(e)), open for public inspection for a period of 3 years from the date the Form 990-T is required to be filed (determined with regard to any extension of time for filing) or is actually filed, whichever is later. Tax chart There is an increase in excise taxes relating to public charities, social welfare organizations, and private foundations. Tax chart There are additional standards for credit counseling organizations. Tax chart The definition of convention or association of churches has been modified. Tax chart Entities that are not required to file Form 990 or 990-EZ must file new Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. Tax chart The requirements of disclosure to state officials relating to exempt organizations has been modified. Tax chart There are excise taxes imposed on excess benefit transactions involving donor advised funds and sponsoring organizations. Tax chart There are new excise taxes on prohibited tax shelter transactions. Tax chart There is a modification of recordkeeping requirements for certain charitable contributions. Tax chart Introduction This publication discusses the rules and procedures for organizations that seek recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (the Code). Tax chart It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. Tax chart To qualify for exemption under the Code, your organization must be organized for one or more of the purposes specifically designated in the Code. Tax chart Organizations that are exempt under section 501(a) include those organizations described in section 501(c). Tax chart Section 501(c) organizations are covered in this publication. Tax chart Chapter 1, Application, Approval, and Appeal Procedures, provides general information about the procedures for obtaining recognition of tax-exempt status. Tax chart Chapter 2, Filing Requirements and Required Disclosures, contains information about annual filing requirements and other matters that may affect your organization's tax-exempt status. Tax chart Chapter 3, Section 501(c)(3) Organizations, contains detailed information on various matters affecting section 501(c)(3) organizations, including a section on the determination of private foundation status. Tax chart Chapter 4, Other Section 501(c) Organizations, includes separate sections for specific types of organizations described in section 501(c). Tax chart Chapter 5, Excise Taxes, provides information on when excise taxes may be imposed. Tax chart Organizations not discussed in this publication. Tax chart   Certain organizations that may qualify for exemption are not discussed in this publication, although they are included in the Organization Reference Chart. Tax chart These organizations (and the Code sections that apply to them) are as follows. Tax chart Corporations organized under Acts of Congress 501(c)(1) Teachers' retirement fund associations 501(c)(11) Mutual insurance companies 501(c)(15) Corporations organized to finance crop operations 501(c)(16) Employee funded pension trusts (created before June 25, 1959) 501(c)(18) Withdrawal liability payment fund 501(c)(22) Veterans' organizations (created before 1880) 501(c)(23) National Railroad Retirement Investment Trust 501(c)(28) Religious and apostolic associations 501(d) Cooperative hospital service organizations 501(e) Cooperative service organizations of operating educational organizations 501(f)   Section 501(c)(24) organizations (section 4049 ERISA trusts) are neither discussed in the text nor listed in the Organization Reference Chart. Tax chart   Similarly, farmers' cooperative associations that qualify for exemption under section 521, qualified state tuition programs described in section 529, and pension, profit-sharing, and stock bonus plans described in section 401(a) are not discussed in this publication. Tax chart If you think your organization falls within one of these categories, contact the IRS for any additional information you need. Tax chart For telephone assistance, call 1-877-829-5500. Tax chart   Check the Table of Contents at the beginning of this publication to determine whether your organization is described in this publication. Tax chart If it is, read the chapter (or section) that applies to your type of organization for the specific information you must give when applying for recognition of exemption. Tax chart Organization Reference Chart. Tax chart   The Organization Reference Chart enables you to locate at a glance the section of the Code under which your organization might qualify for exemption. Tax chart It also shows the required application form and, if your organization meets the exemption requirements, the annual return to be filed (if any), and whether or not a contribution to your organization will be deductible by a donor. Tax chart It also describes each type of qualifying organization and the general nature of its activities. Tax chart   You may use the Organization Reference Chart to determine the Code section that you think applies to your organization. Tax chart Any correspondence with the IRS (in requesting forms or otherwise) will be expedited if you indicate in your correspondence the appropriate Code section. Tax chart Check the IRS website, IRS. Tax chart gov, for the latest updates, Tax Information for Charities & Other Non-Profits, www. Tax chart irs. Tax chart gov/charities/index. Tax chart html. Tax chart Comments and suggestions. Tax chart   We welcome your comments about this publication and your suggestions for future editions. Tax chart   You can e-mail us while visiting our website at IRS. Tax chart gov. Tax chart   You can send your comments to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Tax chart NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Tax chart Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Tax chart   If you wish telephone assistance, please call 1-877-829-5500. Tax chart This toll-free telephone service is available Monday through Friday. Tax chart Prev  Up  Next   Home   More Online Publications
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Tax chart 5. Tax chart   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Tax chart Making the election. Tax chart Form 3115. Tax chart Income TaxesAccrual of contested income taxes. Tax chart Employment Taxes Other TaxesAdditional Medicare Tax. Tax chart What's New Additional Medicare Tax. Tax chart  Beginning in 2013, you must withhold a 0. Tax chart 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Tax chart Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Tax chart See Employment Taxes , and Self-employment tax , later. Tax chart Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Tax chart You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Tax chart Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Tax chart When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Tax chart This applies whether you use the cash method or an accrual method of accounting. Tax chart Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Tax chart You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Tax chart Limit on accrual of taxes. Tax chart   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Tax chart However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Tax chart Example. Tax chart Your state imposes a tax on personal property used in a trade or business conducted in the state. Tax chart This tax is assessed and becomes a lien as of July 1 (accrual date). Tax chart In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Tax chart Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Tax chart You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Tax chart Uniform capitalization rules. Tax chart   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Tax chart They also apply to certain taxpayers who acquire property for resale. Tax chart Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Tax chart For more information, see chapter 1. Tax chart Carrying charges. Tax chart   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Tax chart You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Tax chart For more information, see chapter 7. Tax chart Refunds of taxes. Tax chart   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Tax chart For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Tax chart    You must include in income any interest you receive on tax refunds. Tax chart Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Tax chart 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. Tax chart Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Tax chart See Taxes for local benefits , later. Tax chart If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Tax chart However, you can elect to ratably accrue the taxes during the year. Tax chart See Electing to ratably accrue , later. Tax chart Taxes for local benefits. Tax chart   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Tax chart These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Tax chart You should increase the basis of your property by the amount of the assessment. Tax chart   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Tax chart If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Tax chart Example. Tax chart To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Tax chart The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Tax chart The city is paying the principal and interest with the annual payments made by the property owners. Tax chart The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Tax chart The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Tax chart Charges for services. Tax chart   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Tax chart Purchase or sale of real estate. Tax chart   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Tax chart   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Tax chart Treat the seller as paying the taxes up to but not including the date of sale. Tax chart Treat the buyer as paying the taxes beginning with the date of sale. Tax chart You can usually find this information on the settlement statement you received at closing. Tax chart   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Tax chart Example. Tax chart Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Tax chart He has not elected to ratably accrue property taxes. Tax chart November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Tax chart He sold the property on June 30, 2013. Tax chart Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Tax chart He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Tax chart Electing to ratably accrue. Tax chart   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Tax chart Example. Tax chart Juan Sanchez is a calendar year taxpayer who uses an accrual method. Tax chart His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Tax chart July 1 is the assessment and lien date. Tax chart If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Tax chart Separate elections. Tax chart   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Tax chart Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Tax chart See Form 3115 , later. Tax chart Making the election. Tax chart   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Tax chart The statement should show all the following items. Tax chart The trades or businesses to which the election applies and the accounting method or methods used. Tax chart The period to which the taxes relate. Tax chart The computation of the real estate tax deduction for that first year. Tax chart   Generally, you must file your return by the due date (including extensions). Tax chart However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Tax chart Attach the statement to the amended return and write “Filed pursuant to section 301. Tax chart 9100-2” on the statement. Tax chart File the amended return at the same address where you filed the original return. Tax chart Form 3115. Tax chart    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Tax chart For more information, including applicable time frames for filing, see the Instructions for Form 3115. Tax chart Note. Tax chart If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Tax chart R. Tax chart B. Tax chart 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Tax chart R. Tax chart B. Tax chart 689, and Revenue Procedure 2012-20, 2012-14 I. Tax chart R. Tax chart B. Tax chart 700, or any successor. Tax chart Revenue Procedure 2011-14 is available at  www. Tax chart irs. Tax chart gov/irb/2011-04IRB/ar08. Tax chart html. Tax chart Income Taxes This section discusses federal, state, local, and foreign income taxes. Tax chart Federal income taxes. Tax chart   You cannot deduct federal income taxes. Tax chart State and local income taxes. Tax chart   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Tax chart An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Tax chart   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Tax chart Accrual of contested income taxes. Tax chart   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Tax chart   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Tax chart You cannot deduct them in the year in which the liability is finally determined. Tax chart    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Tax chart Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Tax chart   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Tax chart You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Tax chart For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Tax chart Foreign income taxes. Tax chart   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Tax chart S. Tax chart possession. Tax chart However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Tax chart S. Tax chart tax under the foreign earned income exclusion or the foreign housing exclusion. Tax chart For information on these exclusions, see Publication 54, Tax Guide for U. Tax chart S. Tax chart Citizens and Resident Aliens Abroad. Tax chart For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Tax chart Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Tax chart Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Tax chart You may also need to pay certain employment taxes from your own funds. Tax chart These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Tax chart Note. Tax chart Additional Medicare Tax is only imposed on the employee. Tax chart There is no employer share of Additional Medicare Tax. Tax chart Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Tax chart You can deduct the employment taxes you must pay from your own funds as taxes. Tax chart Example. Tax chart You pay your employee $18,000 a year. Tax chart However, after you withhold various taxes, your employee receives $14,500. Tax chart You also pay an additional $1,500 in employment taxes. Tax chart You should deduct the full $18,000 as wages. Tax chart You can deduct the $1,500 you pay from your own funds as taxes. Tax chart For more information on employment taxes, see Publication 15 (Circular E). Tax chart Unemployment fund taxes. Tax chart   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Tax chart Deduct these payments as taxes. Tax chart Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Tax chart Excise taxes. Tax chart   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Tax chart However, see Fuel taxes , later. Tax chart   For more information on excise taxes, see Publication 510. Tax chart Franchise taxes. Tax chart   You can deduct corporate franchise taxes as a business expense. Tax chart Fuel taxes. Tax chart   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Tax chart Do not deduct these taxes as a separate item. Tax chart   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Tax chart For more information, see Publication 510. Tax chart Occupational taxes. Tax chart   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Tax chart Personal property tax. Tax chart   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Tax chart Sales tax. Tax chart   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. Tax chart 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. Tax chart If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Tax chart If the property is depreciable, add the sales tax to the basis for depreciation. Tax chart For more information on basis, see Publication 551. Tax chart    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. Tax chart Also, do not include these taxes in gross receipts or sales. Tax chart Self-employment tax. Tax chart   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Tax chart This deduction only affects your income tax. Tax chart It does not affect your net earnings from self-employment or your self-employment tax. Tax chart   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Tax chart   For more information on self-employment tax, see Publication 334. Tax chart Additional Medicare Tax. Tax chart   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Tax chart See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Tax chart Prev  Up  Next   Home   More Online Publications