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Vita Tax Program

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Vita Tax Program

Vita tax program Publication 560 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSEP plans. Vita tax program SIMPLE plans. Vita tax program Qualified plans. Vita tax program Ordering forms and publications. Vita tax program Tax questions. Vita tax program Future Developments For the latest information about developments related to Publication 560, such as legislation enacted after we release it, go to www. Vita tax program irs. Vita tax program gov/pub560. Vita tax program What's New Compensation limit increased for 2013 and 2014. Vita tax program  For 2013 the maximum compensation used for figuring contributions and benefits increases to $255,000. Vita tax program This limit increases to $260,000 for 2014. Vita tax program Elective deferral limit for 2013 and 2014. Vita tax program  The limit on elective deferrals, other than catch-up contributions, increases to $17,500 for 2013 and remains at $17,500 for 2014. Vita tax program These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans and section 457(b) plans. Vita tax program Defined contribution limit increased for 2013 and 2014. Vita tax program  The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $51,000 for 2013. Vita tax program This limit increases to $52,000 for 2014. Vita tax program SIMPLE plan salary reduction contribution limit for 2013 and 2014. Vita tax program  The limit on salary reduction contributions, other than catch-up contributions, increases to $12,000 for 2013 and remains at $12,000 for 2014. Vita tax program Catch-up contribution limit remains unchanged for 2013 and 2014. Vita tax program  A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. Vita tax program The catch-up contribution limitation for defined contribution plans other than SIMPLE plans remains unchanged at $5,500 for 2013 and 2014. Vita tax program The catch-up contribution limitation for SIMPLE plans remains unchanged at $2,500 for 2013 and 2014. Vita tax program The catch-up contributions a participant can make for a year cannot exceed the lesser of the following amounts. Vita tax program The catch-up contribution limit. Vita tax program The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Vita tax program See “Catch-up contributions” under Contribution Limits and Limit on Elective Deferrals in chapters 3 and 4, respectively, for more information. Vita tax program All section references are to the Internal Revenue Code, unless otherwise stated. Vita tax program Reminders In-plan Roth rollovers. Vita tax program  Section 402A(c)(4) provides for a distribution from an individual's account in a 401(k) plan, other than from a designated Roth account, that is rolled over to the individual's designated Roth account in the same plan. Vita tax program An in-plan Roth rollover is not treated as a distribution for most purposes. Vita tax program Section 402A(c)(4) was added by the Small Business Jobs Act of 2010 and applies to distributions made after September 27, 2010. Vita tax program For additional guidance on in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Vita tax program R. Vita tax program B. Vita tax program 872, available at  www. Vita tax program irs. Vita tax program gov/irb/2010-51_IRB/ar11. Vita tax program html. Vita tax program In-plan Roth rollovers expanded. Vita tax program  Beginning in 2013, a plan with designated Roth accounts can permit a participant to roll over amounts into a designated Roth account from his or her other accounts in the same plan, regardless of whether the participant is eligible for a distribution from the other accounts. Vita tax program Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012. Vita tax program For more information, see Notice 2013-74, 2013-52 I. Vita tax program R. Vita tax program B. Vita tax program 819, available at www. Vita tax program irs. Vita tax program gov/irb/2013-52_IRB/ar11. Vita tax program html. Vita tax program Credit for startup costs. Vita tax program  You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan. Vita tax program The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. Vita tax program You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. Vita tax program You must have had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year. Vita tax program At least one participant must be a non-highly compensated employee. Vita tax program The employees generally cannot be substantially the same employees for whom contributions were made or benefits accrued under a plan of any of the following employers in the 3-tax-year period immediately before the first year to which the credit applies. Vita tax program You. Vita tax program A member of a controlled group that includes you. Vita tax program A predecessor of (1) or (2). Vita tax program The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year. Vita tax program However, the part of the general business credit attributable to the small employer pension plan startup cost credit cannot be carried back to a tax year beginning before January 1, 2002. Vita tax program You cannot deduct the part of the startup costs equal to the credit claimed for a tax year, but you can choose not to claim the allowable credit for a tax year. Vita tax program To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs. Vita tax program Retirement savings contributions credit. Vita tax program  Retirement plan participants (including self-employed individuals) who make contributions to their plan may qualify for the retirement savings contribution credit. Vita tax program The maximum contribution eligible for the credit is $2,000. Vita tax program To take the credit, use Form 8880, Credit for Qualified Retirement Savings Contributions. Vita tax program For more information on who is eligible for the credit, retirement plan contributions eligible for the credit and how to figure the credit, see Form 8880 and its instructions or go to the IRS website and search Retirement Topics-Retirement Savings Contributions Credit (Saver's Credit). Vita tax program Photographs of missing children. Vita tax program  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Vita tax program Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Vita tax program You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Vita tax program Introduction This publication discusses retirement plans you can set up and maintain for yourself and your employees. Vita tax program In this publication, “you” refers to the employer. Vita tax program See chapter 1 for the definition of the term employer and the definitions of other terms used in this publication. Vita tax program This publication covers the following types of retirement plans. Vita tax program SEP (simplified employee pension) plans. Vita tax program SIMPLE (savings incentive match plan for employees) plans. Vita tax program Qualified plans (also called H. Vita tax program R. Vita tax program 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans. Vita tax program SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. Vita tax program You can deduct contributions you make to the plan for your employees. Vita tax program If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. Vita tax program You can also deduct trustees' fees if contributions to the plan do not cover them. Vita tax program Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Vita tax program Under a 401(k) plan, employees can have you contribute limited amounts of their before-tax (after-tax, in the case of a qualified Roth contribution program) pay to the plan. Vita tax program These amounts (and the earnings on them) are generally tax free until your employees receive distributions from the plan or, in the case of a qualified distribution from a designated Roth account, completely tax free. Vita tax program What this publication covers. Vita tax program   This publication contains the information you need to understand the following topics. Vita tax program What type of plan to set up. Vita tax program How to set up a plan. Vita tax program How much you can contribute to a plan. Vita tax program How much of your contribution is deductible. Vita tax program How to treat certain distributions. Vita tax program How to report information about the plan to the IRS and your employees. Vita tax program Basic features of SEP, SIMPLE, and qualified plans. Vita tax program The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1. Vita tax program SEP plans. Vita tax program   SEPs provide a simplified method for you to make contributions to a retirement plan for yourself and your employees. Vita tax program Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for yourself and each eligible employee. Vita tax program SIMPLE plans. Vita tax program   Generally, if you had 100 or fewer employees who received at least $5,000 in compensation last year, you can set up a SIMPLE plan. Vita tax program Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. Vita tax program In addition, you will contribute matching or nonelective contributions. Vita tax program The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan. Vita tax program Qualified plans. Vita tax program   The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. Vita tax program However, there are advantages to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases. Vita tax program Table 1. Vita tax program Key Retirement Plan Rules for 2013 Type  of  Plan Last Date for Contribution Maximum Contribution Maximum Deduction When To Set Up Plan SEP Due date of employer's return (including extensions). Vita tax program Smaller of $51,000 or 25%1 of participant's compensation. Vita tax program 2 25%1 of all participants' compensation. Vita tax program 2 Any time up to the due date of employer's return (including extensions). Vita tax program SIMPLE IRA and SIMPLE 401(k) Salary reduction contributions: 30 days after the end of the month for which the contributions are to be made. Vita tax program 4  Matching or nonelective contributions: Due date of employer's return (including extensions). Vita tax program Employee contribution: Salary reduction contribution up to $12,000, $14,500 if age 50 or over. Vita tax program   Employer contribution:  Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3 or fixed nonelective contributions of 2% of compensation. Vita tax program 2 Same as maximum contribution. Vita tax program Any time between 1/1 and 10/1 of the calendar year. Vita tax program   For a new employer coming into existence after 10/1, as soon as administratively feasible. Vita tax program Qualified Plan: Defined Contribution Plan  Elective deferral: Due date of employer's return (including extensions). Vita tax program 4   Employer contribution: Money Purchase or Profit-Sharing: Due date of employer's return (including extensions). Vita tax program  Employee contribution: Elective deferral up to $17,500, $23,000 if age 50 or over. Vita tax program   Employer contribution: Money Purchase: Smaller of $51,000 or 100%1 of participant's compensation. Vita tax program 2  Profit-Sharing: Smaller of $51,000 or 100%1 of participant's compensation. Vita tax program 2  25%1 of all participants' compensation2, plus amount of elective deferrals made. Vita tax program   By the end of the tax year. Vita tax program Qualified Plan: Defined Benefit Plan Contributions generally must be paid in quarterly installments, due 15 days after the end of each quarter. Vita tax program See Minimum Funding Requirement in chapter 4. Vita tax program Amount needed to provide an annual benefit no larger than the smaller of $205,000 or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Vita tax program Based on actuarial assumptions and computations. Vita tax program By the end of the tax year. Vita tax program 1Net earnings from self-employment must take the contribution into account. Vita tax program See Deduction Limit for Self-Employed Individuals in chapters 2 and 4 . Vita tax program  2Compensation is generally limited to $255,000 in 2013. Vita tax program  3Under a SIMPLE 401(k) plan, compensation is generally limited to $255,000 in 2013. Vita tax program  4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals. Vita tax program What this publication does not cover. Vita tax program   Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, it does not contain all the rules and exceptions that apply to these plans. Vita tax program You may also need professional help and guidance. Vita tax program   Also, this publication does not cover all the rules that may be of interest to employees. Vita tax program For example, it does not cover the following topics. Vita tax program The comprehensive IRA rules an employee needs to know. Vita tax program These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs). Vita tax program The comprehensive rules that apply to distributions from retirement plans. Vita tax program These rules are covered in Publication 575, Pension and Annuity Income. Vita tax program The comprehensive rules that apply to section 403(b) plans. Vita tax program These rules are covered in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). Vita tax program Comments and suggestions. Vita tax program   We welcome your comments about this publication and your suggestions for future editions. Vita tax program   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Vita tax program NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Vita tax program Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Vita tax program   You can send your comments from www. Vita tax program irs. Vita tax program gov/formspubs. Vita tax program Click on “More Information” and then on “Give us feedback. Vita tax program ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Vita tax program Ordering forms and publications. Vita tax program   Visit www. Vita tax program irs. Vita tax program gov/formspubs to download forms  and publications, call 1-800-TAX-FORM  (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Vita tax program Internal Revenue Service 1201 N. Vita tax program Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Vita tax program   If you have a tax question, check the information available on IRS. Vita tax program gov or call 1-800-829-1040. Vita tax program We cannot answer tax questions sent to either of the above addresses. Vita tax program Note. Vita tax program Forms filed electronically with the Department of Labor are not available on the IRS website. Vita tax program Instead, see www. Vita tax program efast. Vita tax program dol. Vita tax program gov. Vita tax program Prev  Up  Next   Home   More Online Publications
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The Vita Tax Program

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