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Tax Forms 2012 Federal

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Tax Forms 2012 Federal

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

Tax forms 2012 federal 35. Tax forms 2012 federal   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. Tax forms 2012 federal They are: The American opportunity credit, and The lifetime learning credit. Tax forms 2012 federal The chapter will present an overview of these education credits. Tax forms 2012 federal To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. Tax forms 2012 federal Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. Tax forms 2012 federal For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. Tax forms 2012 federal   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. Tax forms 2012 federal   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. Tax forms 2012 federal This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Tax forms 2012 federal Table 35-1. Tax forms 2012 federal Comparison of Education Credits Caution. Tax forms 2012 federal You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. Tax forms 2012 federal   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. Tax forms 2012 federal   There are several differences between these two credits. Tax forms 2012 federal These differences are summarized in Table 35-1, later. Tax forms 2012 federal Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. Tax forms 2012 federal The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. Tax forms 2012 federal For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). Tax forms 2012 federal Academic period. Tax forms 2012 federal   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Tax forms 2012 federal In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Tax forms 2012 federal Eligible educational institution. Tax forms 2012 federal   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Tax forms 2012 federal S. Tax forms 2012 federal Department of Education. Tax forms 2012 federal It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Tax forms 2012 federal The educational institution should be able to tell you if it is an eligible educational institution. Tax forms 2012 federal   Certain educational institutions located outside the United States also participate in the U. Tax forms 2012 federal S. Tax forms 2012 federal Department of Education's Federal Student Aid (FSA) programs. Tax forms 2012 federal Who can claim a dependent's expenses. Tax forms 2012 federal   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Tax forms 2012 federal Therefore, only that person can claim an education credit for the student. Tax forms 2012 federal If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. Tax forms 2012 federal Expenses paid by a third party. Tax forms 2012 federal   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Tax forms 2012 federal However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Tax forms 2012 federal Therefore, you are treated as having paid expenses that were paid by the third party. Tax forms 2012 federal For more information and an example see Who Can Claim a Dependent's Expenses in Pub. Tax forms 2012 federal 970, chapter 2 or 3. Tax forms 2012 federal Who cannot claim a credit. Tax forms 2012 federal   You cannot take an education credit if any of the following apply. Tax forms 2012 federal You are claimed as a dependent on another person's tax return, such as your parent's return. Tax forms 2012 federal Your filing status is married filing separately. Tax forms 2012 federal You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. Tax forms 2012 federal Your MAGI is one of the following. Tax forms 2012 federal American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). Tax forms 2012 federal Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . Tax forms 2012 federal   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. Tax forms 2012 federal However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. Tax forms 2012 federal For details, see Pub. Tax forms 2012 federal 970. Tax forms 2012 federal    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. Tax forms 2012 federal The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. Tax forms 2012 federal However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. Tax forms 2012 federal You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Tax forms 2012 federal See Pub. Tax forms 2012 federal 970 for information on other education benefits. Tax forms 2012 federal Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Tax forms 2012 federal It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Tax forms 2012 federal For course-related books, supplies, and equipment, only certain expenses qualify. Tax forms 2012 federal American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Tax forms 2012 federal Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Tax forms 2012 federal Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. Tax forms 2012 federal However, fees for personal expenses (described below) are never qualified education expenses. Tax forms 2012 federal Qualified education expenses for either credit do not include amounts paid for: Personal expenses. Tax forms 2012 federal This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. Tax forms 2012 federal Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. Tax forms 2012 federal You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). Tax forms 2012 federal However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). Tax forms 2012 federal In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. Tax forms 2012 federal Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Tax forms 2012 federal Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Tax forms 2012 federal If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. Tax forms 2012 federal Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. Tax forms 2012 federal See Adjustments to Qualified Education Expenses, later. Tax forms 2012 federal Prepaid Expenses. Tax forms 2012 federal   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. Tax forms 2012 federal See Academic period , earlier. Tax forms 2012 federal For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Tax forms 2012 federal    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Tax forms 2012 federal Paid with borrowed funds. Tax forms 2012 federal   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Tax forms 2012 federal Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Tax forms 2012 federal Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Tax forms 2012 federal Student withdraws from class(es). Tax forms 2012 federal   You can claim an education credit for qualified education expenses not refunded when a student withdraws. Tax forms 2012 federal No Double Benefit Allowed You cannot do any of the following. Tax forms 2012 federal Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. Tax forms 2012 federal Claim more than one education credit based on the same qualified education expenses. Tax forms 2012 federal Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Tax forms 2012 federal Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. Tax forms 2012 federal See Adjustments to Qualified Education Expenses, next. Tax forms 2012 federal Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. Tax forms 2012 federal The result is the amount of adjusted qualified education expenses for each student. Tax forms 2012 federal Tax-free educational assistance. Tax forms 2012 federal   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Tax forms 2012 federal See Academic period , earlier. Tax forms 2012 federal      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. Tax forms 2012 federal 970), The tax-free part of Pell grants (see chapter 1 of Pub. Tax forms 2012 federal 970), The tax-free part of employer-provided educational assistance (see Pub. Tax forms 2012 federal 970), Veterans' educational assistance (see chapter 1 of Pub. Tax forms 2012 federal 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Tax forms 2012 federal Generally, any scholarship or fellowship is treated as tax-free educational assistance. Tax forms 2012 federal However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Tax forms 2012 federal 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Tax forms 2012 federal 970, chapter 1. Tax forms 2012 federal You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. Tax forms 2012 federal For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. Tax forms 2012 federal 970. Tax forms 2012 federal Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Tax forms 2012 federal This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Tax forms 2012 federal If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Tax forms 2012 federal If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Tax forms 2012 federal Refunds. Tax forms 2012 federal   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Tax forms 2012 federal Some tax-free educational assistance received after 2013 may be treated as a refund. Tax forms 2012 federal See Tax-free educational assistance, earlier. Tax forms 2012 federal Refunds received in 2013. Tax forms 2012 federal   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Tax forms 2012 federal Refunds received after 2013 but before your income tax return is filed. Tax forms 2012 federal   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Tax forms 2012 federal Refunds received after 2013 and after your income tax return is filed. Tax forms 2012 federal   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. Tax forms 2012 federal See Credit recapture, next. Tax forms 2012 federal Credit recapture. Tax forms 2012 federal    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Tax forms 2012 federal You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Tax forms 2012 federal You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Tax forms 2012 federal Include that amount as an additional tax for the year the refund or tax-free assistance was received. Tax forms 2012 federal Example. Tax forms 2012 federal    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. Tax forms 2012 federal You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . Tax forms 2012 federal 20). Tax forms 2012 federal You claimed no other tax credits. Tax forms 2012 federal After you filed your return, your child withdrew from two courses and you received a refund of $1,400. Tax forms 2012 federal You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). Tax forms 2012 federal The refigured credit is $1,320 and your tax liability increased by $280. Tax forms 2012 federal You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. Tax forms 2012 federal See the instructions for your 2014 income tax return to determine where to include this tax. Tax forms 2012 federal If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Tax forms 2012 federal Amounts that do not reduce qualified education expenses. Tax forms 2012 federal   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Tax forms 2012 federal   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Tax forms 2012 federal The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. Tax forms 2012 federal 970. Tax forms 2012 federal The use of the money is not restricted. Tax forms 2012 federal   For examples, see chapter 2 in Pub. Tax forms 2012 federal 970. Tax forms 2012 federal Figure 35-A. Tax forms 2012 federal Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. Tax forms 2012 federal Please click the link to view the image. Tax forms 2012 federal Figure 35-A. Tax forms 2012 federal Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications