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1040ez 2010 Tax Form

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1040ez 2010 Tax Form

1040ez 2010 tax form Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. 1040ez 2010 tax form Hybrid method. 1040ez 2010 tax form Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 1040ez 2010 tax form Accounting Periods You must use a tax year to figure your taxable income. 1040ez 2010 tax form A tax year is an annual accounting period for keeping records and reporting income and expenses. 1040ez 2010 tax form An annual accounting period does not include a short tax year (discussed later). 1040ez 2010 tax form You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). 1040ez 2010 tax form Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. 1040ez 2010 tax form A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. 1040ez 2010 tax form You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. 1040ez 2010 tax form This section discusses: A calendar year. 1040ez 2010 tax form A fiscal year (including a period of 52 or 53 weeks). 1040ez 2010 tax form A short tax year. 1040ez 2010 tax form An improper tax year. 1040ez 2010 tax form A change in tax year. 1040ez 2010 tax form Special situations that apply to individuals. 1040ez 2010 tax form Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. 1040ez 2010 tax form Special situations that apply to corporations. 1040ez 2010 tax form Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. 1040ez 2010 tax form If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. 1040ez 2010 tax form If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. 1040ez 2010 tax form See Change in Tax Year, later. 1040ez 2010 tax form Generally, anyone can adopt the calendar year. 1040ez 2010 tax form However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. 1040ez 2010 tax form Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. 1040ez 2010 tax form If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. 1040ez 2010 tax form 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. 1040ez 2010 tax form If you make this election, your 52-53-week tax year must always end on the same day of the week. 1040ez 2010 tax form Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. 1040ez 2010 tax form For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. 1040ez 2010 tax form Election. 1040ez 2010 tax form   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. 1040ez 2010 tax form The month in which the new 52-53-week tax year ends. 1040ez 2010 tax form The day of the week on which the tax year always ends. 1040ez 2010 tax form The date the tax year ends. 1040ez 2010 tax form It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. 1040ez 2010 tax form   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. 1040ez 2010 tax form   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. 1040ez 2010 tax form Example. 1040ez 2010 tax form Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. 1040ez 2010 tax form For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. 1040ez 2010 tax form Short Tax Year A short tax year is a tax year of less than 12 months. 1040ez 2010 tax form A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. 1040ez 2010 tax form Tax on a short period tax return is figured differently for each situation. 1040ez 2010 tax form Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. 1040ez 2010 tax form Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form XYZ Corporation was organized on July 1, 2012. 1040ez 2010 tax form It elected the calendar year as its tax year. 1040ez 2010 tax form Therefore, its first tax return was due March 15, 2013. 1040ez 2010 tax form This short period return will cover the period from July 1, 2012, through December 31, 2012. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form A calendar year corporation dissolved on July 23, 2012. 1040ez 2010 tax form Its final return is due by October 15, 2012. 1040ez 2010 tax form It will cover the short period from January 1, 2012, through July 23, 2012. 1040ez 2010 tax form Death of individual. 1040ez 2010 tax form   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. 1040ez 2010 tax form The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. 1040ez 2010 tax form In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. 1040ez 2010 tax form Example. 1040ez 2010 tax form   Agnes Green was a single, calendar year taxpayer. 1040ez 2010 tax form She died on March 6, 2012. 1040ez 2010 tax form Her final income tax return must be filed by April 15, 2013. 1040ez 2010 tax form It will cover the short period from January 1, 2012, to March 6, 2012. 1040ez 2010 tax form Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. 1040ez 2010 tax form The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. 1040ez 2010 tax form Figure tax for a short year under the general rule, explained below. 1040ez 2010 tax form You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. 1040ez 2010 tax form General rule. 1040ez 2010 tax form   Income tax for a short tax year must be annualized. 1040ez 2010 tax form However, self-employment tax is figured on the actual self-employment income for the short period. 1040ez 2010 tax form Individuals. 1040ez 2010 tax form   An individual must figure income tax for the short tax year as follows. 1040ez 2010 tax form Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. 1040ez 2010 tax form You must itemize deductions when you file a short period tax return. 1040ez 2010 tax form Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. 1040ez 2010 tax form Subtract the amount in (2) from the amount in (1). 1040ez 2010 tax form The result is your modified taxable income. 1040ez 2010 tax form Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. 1040ez 2010 tax form The result is your annualized income. 1040ez 2010 tax form Figure the total tax on your annualized income using the appropriate tax rate schedule. 1040ez 2010 tax form Multiply the total tax by the number of months in the short tax year and divide the result by 12. 1040ez 2010 tax form The result is your tax for the short tax year. 1040ez 2010 tax form Relief procedure. 1040ez 2010 tax form   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. 1040ez 2010 tax form It may result in less tax. 1040ez 2010 tax form Under this procedure, the tax is figured by two separate methods. 1040ez 2010 tax form If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. 1040ez 2010 tax form For more information, see section 443(b)(2) of the Internal Revenue Code. 1040ez 2010 tax form Alternative minimum tax. 1040ez 2010 tax form   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. 1040ez 2010 tax form Multiply the AMTI by 12. 1040ez 2010 tax form Divide the result by the number of months in the short tax year. 1040ez 2010 tax form Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. 1040ez 2010 tax form The result is the annualized AMT. 1040ez 2010 tax form Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. 1040ez 2010 tax form   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. 1040ez 2010 tax form For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. 1040ez 2010 tax form Tax withheld from wages. 1040ez 2010 tax form   You can claim a credit against your income tax liability for federal income tax withheld from your wages. 1040ez 2010 tax form Federal income tax is withheld on a calendar year basis. 1040ez 2010 tax form The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. 1040ez 2010 tax form Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. 1040ez 2010 tax form For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. 1040ez 2010 tax form See Accounting Periods, earlier, for a description of permissible tax years. 1040ez 2010 tax form To change to a proper tax year, you must do one of the following. 1040ez 2010 tax form If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. 1040ez 2010 tax form Attach a completed Form 1128 to the amended tax return. 1040ez 2010 tax form Write “FILED UNDER REV. 1040ez 2010 tax form PROC. 1040ez 2010 tax form 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. 1040ez 2010 tax form If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. 1040ez 2010 tax form Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. 1040ez 2010 tax form See the Instructions for Form 1128 for exceptions. 1040ez 2010 tax form If you qualify for an automatic approval request, a user fee is not required. 1040ez 2010 tax form Individuals Generally, individuals must adopt the calendar year as their tax year. 1040ez 2010 tax form An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. 1040ez 2010 tax form Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. 1040ez 2010 tax form A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. 1040ez 2010 tax form The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). 1040ez 2010 tax form The following discussions provide the rules for partnerships, S corporations, and PSCs. 1040ez 2010 tax form Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. 1040ez 2010 tax form The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. 1040ez 2010 tax form The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. 1040ez 2010 tax form The partnership can establish a business purpose for a different tax year. 1040ez 2010 tax form The rules for the required tax year for partnerships are as follows. 1040ez 2010 tax form If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. 1040ez 2010 tax form If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. 1040ez 2010 tax form A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. 1040ez 2010 tax form If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. 1040ez 2010 tax form If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. 1040ez 2010 tax form Least aggregate deferral of income. 1040ez 2010 tax form   The tax year that results in the least aggregate deferral of income is determined as follows. 1040ez 2010 tax form Figure the number of months of deferral for each partner using one partner's tax year. 1040ez 2010 tax form Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. 1040ez 2010 tax form Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). 1040ez 2010 tax form Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). 1040ez 2010 tax form Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. 1040ez 2010 tax form   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. 1040ez 2010 tax form If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. 1040ez 2010 tax form However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. 1040ez 2010 tax form Example. 1040ez 2010 tax form A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. 1040ez 2010 tax form A uses the calendar year and B uses a fiscal year ending November 30. 1040ez 2010 tax form P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. 1040ez 2010 tax form Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. 1040ez 2010 tax form 5 -0- -0- B 11/30 0. 1040ez 2010 tax form 5 11 5. 1040ez 2010 tax form 5 Total Deferral 5. 1040ez 2010 tax form 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. 1040ez 2010 tax form 5 1 0. 1040ez 2010 tax form 5 B 11/30 0. 1040ez 2010 tax form 5 -0- -0- Total Deferral 0. 1040ez 2010 tax form 5 When determination is made. 1040ez 2010 tax form   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. 1040ez 2010 tax form However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. 1040ez 2010 tax form This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. 1040ez 2010 tax form Short period return. 1040ez 2010 tax form   When a partnership changes its tax year, a short period return must be filed. 1040ez 2010 tax form The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. 1040ez 2010 tax form   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. 1040ez 2010 tax form The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. 1040ez 2010 tax form 706-1. 1040ez 2010 tax form ” More information. 1040ez 2010 tax form   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. 1040ez 2010 tax form S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. 1040ez 2010 tax form A permitted tax year is any of the following. 1040ez 2010 tax form The calendar year. 1040ez 2010 tax form A tax year elected under section 444 of the Internal Revenue Code. 1040ez 2010 tax form See Section 444 Election, below for details. 1040ez 2010 tax form A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. 1040ez 2010 tax form Any other tax year for which the corporation establishes a business purpose. 1040ez 2010 tax form If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. 1040ez 2010 tax form For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. 1040ez 2010 tax form Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. 1040ez 2010 tax form The corporation makes an election under section 444 of the Internal Revenue Code. 1040ez 2010 tax form See Section 444 Election, below for details. 1040ez 2010 tax form The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. 1040ez 2010 tax form The corporation establishes a business purpose for a fiscal year. 1040ez 2010 tax form See the Instructions for Form 1120 for general information about PSCs. 1040ez 2010 tax form For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. 1040ez 2010 tax form Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. 1040ez 2010 tax form Certain restrictions apply to the election. 1040ez 2010 tax form A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). 1040ez 2010 tax form The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. 1040ez 2010 tax form A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. 1040ez 2010 tax form It is not a member of a tiered structure (defined in section 1. 1040ez 2010 tax form 444-2T of the regulations). 1040ez 2010 tax form It has not previously had a section 444 election in effect. 1040ez 2010 tax form It elects a year that meets the deferral period requirement. 1040ez 2010 tax form Deferral period. 1040ez 2010 tax form   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. 1040ez 2010 tax form Retaining tax year. 1040ez 2010 tax form   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. 1040ez 2010 tax form This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. 1040ez 2010 tax form Adopting or changing tax year. 1040ez 2010 tax form   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. 1040ez 2010 tax form The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. 1040ez 2010 tax form This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. 1040ez 2010 tax form If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form BD Partnership uses a calendar year, which is also its required tax year. 1040ez 2010 tax form BD cannot make a section 444 election because the deferral period is zero. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form E, a newly formed partnership, began operations on December 1. 1040ez 2010 tax form E is owned by calendar year partners. 1040ez 2010 tax form E wants to make a section 444 election to adopt a September 30 tax year. 1040ez 2010 tax form E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. 1040ez 2010 tax form Making the election. 1040ez 2010 tax form   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. 1040ez 2010 tax form Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. 1040ez 2010 tax form For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. 1040ez 2010 tax form Note. 1040ez 2010 tax form If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. 1040ez 2010 tax form   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. 1040ez 2010 tax form AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. 1040ez 2010 tax form AB must file Form 8716 by March 17, 2013. 1040ez 2010 tax form Example 3. 1040ez 2010 tax form B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. 1040ez 2010 tax form B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. 1040ez 2010 tax form B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. 1040ez 2010 tax form Note. 1040ez 2010 tax form The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. 1040ez 2010 tax form Extension of time for filing. 1040ez 2010 tax form   There is an automatic extension of 12 months to make this election. 1040ez 2010 tax form See the Form 8716 instructions for more information. 1040ez 2010 tax form Terminating the election. 1040ez 2010 tax form   The section 444 election remains in effect until it is terminated. 1040ez 2010 tax form If the election is terminated, another section 444 election cannot be made for any tax year. 1040ez 2010 tax form   The election ends when any of the following applies to the partnership, S corporation, or PSC. 1040ez 2010 tax form The entity changes to its required tax year. 1040ez 2010 tax form The entity liquidates. 1040ez 2010 tax form The entity becomes a member of a tiered structure. 1040ez 2010 tax form The IRS determines that the entity willfully failed to comply with the required payments or distributions. 1040ez 2010 tax form   The election will also end if either of the following events occur. 1040ez 2010 tax form An S corporation's S election is terminated. 1040ez 2010 tax form However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. 1040ez 2010 tax form A PSC ceases to be a PSC. 1040ez 2010 tax form If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. 1040ez 2010 tax form Required payment for partnership or S corporation. 1040ez 2010 tax form   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. 1040ez 2010 tax form The required payment for that year (or any preceding tax year) is more than $500. 1040ez 2010 tax form    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. 1040ez 2010 tax form   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. 1040ez 2010 tax form If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. 1040ez 2010 tax form If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. 1040ez 2010 tax form Applicable election year. 1040ez 2010 tax form   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. 1040ez 2010 tax form Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. 1040ez 2010 tax form Required distribution for PSC. 1040ez 2010 tax form   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. 1040ez 2010 tax form If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. 1040ez 2010 tax form The amount deferred is treated as paid or incurred in the following tax year. 1040ez 2010 tax form   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). 1040ez 2010 tax form Back-up election. 1040ez 2010 tax form   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. 1040ez 2010 tax form If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). 1040ez 2010 tax form Making back-up election. 1040ez 2010 tax form   The general rules for making a section 444 election, as discussed earlier, apply. 1040ez 2010 tax form When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. 1040ez 2010 tax form However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. 1040ez 2010 tax form Activating election. 1040ez 2010 tax form   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. 1040ez 2010 tax form The due date for filing Form 8752 and making the payment is the later of the following dates. 1040ez 2010 tax form May 15 of the calendar year following the calendar year in which the applicable election year begins. 1040ez 2010 tax form 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. 1040ez 2010 tax form   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. 1040ez 2010 tax form ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). 1040ez 2010 tax form A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. 1040ez 2010 tax form However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. 1040ez 2010 tax form Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. 1040ez 2010 tax form See the Instructions for Form 1128 for details. 1040ez 2010 tax form Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. 1040ez 2010 tax form A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. 1040ez 2010 tax form An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. 1040ez 2010 tax form Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. 1040ez 2010 tax form See the Instructions for Form 1128 for details. 1040ez 2010 tax form Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. 1040ez 2010 tax form Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. 1040ez 2010 tax form You choose an accounting method when you file your first tax return. 1040ez 2010 tax form If you later want to change your accounting method, you must get IRS approval. 1040ez 2010 tax form See Change in Accounting Method, later. 1040ez 2010 tax form No single accounting method is required of all taxpayers. 1040ez 2010 tax form You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. 1040ez 2010 tax form In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. 1040ez 2010 tax form You must use the same accounting method from year to year. 1040ez 2010 tax form An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. 1040ez 2010 tax form If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. 1040ez 2010 tax form Methods you can use. 1040ez 2010 tax form   In general, you can compute your taxable income under any of the following accounting methods. 1040ez 2010 tax form Cash method. 1040ez 2010 tax form Accrual method. 1040ez 2010 tax form Special methods of accounting for certain items of income and expenses. 1040ez 2010 tax form A hybrid method which combines elements of two or more of the above accounting methods. 1040ez 2010 tax form The cash and accrual methods of accounting are explained later. 1040ez 2010 tax form Special methods. 1040ez 2010 tax form   This publication does not discuss special methods of accounting for certain items of income or expenses. 1040ez 2010 tax form For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. 1040ez 2010 tax form The following publications also discuss special methods of reporting income or expenses. 1040ez 2010 tax form Publication 225, Farmer's Tax Guide. 1040ez 2010 tax form Publication 535, Business Expenses. 1040ez 2010 tax form Publication 537, Installment Sales. 1040ez 2010 tax form Publication 946, How To Depreciate Property. 1040ez 2010 tax form Hybrid method. 1040ez 2010 tax form   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. 1040ez 2010 tax form However, the following restrictions apply. 1040ez 2010 tax form If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. 1040ez 2010 tax form See Exceptions under Inventories, later. 1040ez 2010 tax form Generally, you can use the cash method for all other items of income and expenses. 1040ez 2010 tax form See Inventories, later. 1040ez 2010 tax form If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. 1040ez 2010 tax form If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. 1040ez 2010 tax form Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. 1040ez 2010 tax form Business and personal items. 1040ez 2010 tax form   You can account for business and personal items using different accounting methods. 1040ez 2010 tax form For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. 1040ez 2010 tax form Two or more businesses. 1040ez 2010 tax form   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. 1040ez 2010 tax form No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. 1040ez 2010 tax form Note. 1040ez 2010 tax form If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. 1040ez 2010 tax form Cash Method Most individuals and many small businesses use the cash method of accounting. 1040ez 2010 tax form Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. 1040ez 2010 tax form See Inventories, later, for exceptions to this rule. 1040ez 2010 tax form Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. 1040ez 2010 tax form If you receive property and services, you must include their fair market value (FMV) in income. 1040ez 2010 tax form Constructive receipt. 1040ez 2010 tax form   Income is constructively received when an amount is credited to your account or made available to you without restriction. 1040ez 2010 tax form You need not have possession of it. 1040ez 2010 tax form If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. 1040ez 2010 tax form Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. 1040ez 2010 tax form Example. 1040ez 2010 tax form You are a calendar year taxpayer. 1040ez 2010 tax form Your bank credited, and made available, interest to your bank account in December 2012. 1040ez 2010 tax form You did not withdraw it or enter it into your books until 2013. 1040ez 2010 tax form You must include the amount in gross income for 2012, the year you constructively received it. 1040ez 2010 tax form You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. 1040ez 2010 tax form You must report the income in the year the property is received or made available to you without restriction. 1040ez 2010 tax form Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. 1040ez 2010 tax form This includes business expenses for which you contest liability. 1040ez 2010 tax form However, you may not be able to deduct an expense paid in advance. 1040ez 2010 tax form Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. 1040ez 2010 tax form Expense paid in advance. 1040ez 2010 tax form   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. 1040ez 2010 tax form   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. 1040ez 2010 tax form 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. 1040ez 2010 tax form   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. 1040ez 2010 tax form See Change in Accounting Method, later. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. 1040ez 2010 tax form The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. 1040ez 2010 tax form Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. 1040ez 2010 tax form The 12-month rule applies. 1040ez 2010 tax form Therefore, the full $10,000 is deductible in 2012. 1040ez 2010 tax form Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. 1040ez 2010 tax form (See Special rules for farming businesses, later. 1040ez 2010 tax form ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. 1040ez 2010 tax form See Gross receipts test, below. 1040ez 2010 tax form A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. 1040ez 2010 tax form See Gross receipts test, below. 1040ez 2010 tax form A tax shelter. 1040ez 2010 tax form Exceptions The following entities are not prohibited from using the cash method of accounting. 1040ez 2010 tax form Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. 1040ez 2010 tax form A qualified personal service corporation (PSC). 1040ez 2010 tax form Gross receipts test. 1040ez 2010 tax form   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. 1040ez 2010 tax form A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. 1040ez 2010 tax form    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. 1040ez 2010 tax form See Gross receipts test for qualifying taxpayers, for more information. 1040ez 2010 tax form Generally, a partnership applies the test at the partnership level. 1040ez 2010 tax form Gross receipts for a short tax year are annualized. 1040ez 2010 tax form Aggregation rules. 1040ez 2010 tax form   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. 1040ez 2010 tax form Change to accrual method. 1040ez 2010 tax form   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. 1040ez 2010 tax form Special rules for farming businesses. 1040ez 2010 tax form   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. 1040ez 2010 tax form However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. 1040ez 2010 tax form For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). 1040ez 2010 tax form   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. 1040ez 2010 tax form For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. 1040ez 2010 tax form See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. 1040ez 2010 tax form Qualified PSC. 1040ez 2010 tax form   A PSC that meets the following function and ownership tests can use the cash method. 1040ez 2010 tax form Function test. 1040ez 2010 tax form   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. 1040ez 2010 tax form Ownership test. 1040ez 2010 tax form   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. 1040ez 2010 tax form Employees performing services for the corporation in a field qualifying under the function test. 1040ez 2010 tax form Retired employees who had performed services in those fields. 1040ez 2010 tax form The estate of an employee described in (1) or (2). 1040ez 2010 tax form Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. 1040ez 2010 tax form   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. 1040ez 2010 tax form Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. 1040ez 2010 tax form Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. 1040ez 2010 tax form   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. 1040ez 2010 tax form Change to accrual method. 1040ez 2010 tax form   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. 1040ez 2010 tax form A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. 1040ez 2010 tax form Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. 1040ez 2010 tax form The purpose of an accrual method of accounting is to match income and expenses in the correct year. 1040ez 2010 tax form Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. 1040ez 2010 tax form Under this rule, you report an amount in your gross income on the earliest of the following dates. 1040ez 2010 tax form When you receive payment. 1040ez 2010 tax form When the income amount is due to you. 1040ez 2010 tax form When you earn the income. 1040ez 2010 tax form When title has passed. 1040ez 2010 tax form Estimated income. 1040ez 2010 tax form   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. 1040ez 2010 tax form Change in payment schedule. 1040ez 2010 tax form   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. 1040ez 2010 tax form Continue this procedure until you complete the services, then account for the difference. 1040ez 2010 tax form Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. 1040ez 2010 tax form However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. 1040ez 2010 tax form However, you cannot postpone including any payment beyond that tax year. 1040ez 2010 tax form Service agreement. 1040ez 2010 tax form   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. 1040ez 2010 tax form This includes an agreement providing for incidental replacement of parts or materials. 1040ez 2010 tax form However, this applies only if you offer the property without a service agreement in the normal course of business. 1040ez 2010 tax form Postponement not allowed. 1040ez 2010 tax form   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. 1040ez 2010 tax form You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. 1040ez 2010 tax form You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. 1040ez 2010 tax form Examples. 1040ez 2010 tax form   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You manufacture, sell, and service computers. 1040ez 2010 tax form You received payment in 2012 for a one-year contingent service contract on a computer you sold. 1040ez 2010 tax form You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form You are in the television repair business. 1040ez 2010 tax form You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. 1040ez 2010 tax form You include the payments in gross income as you earn them. 1040ez 2010 tax form Example 3. 1040ez 2010 tax form You own a dance studio. 1040ez 2010 tax form On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. 1040ez 2010 tax form You give eight lessons in 2012. 1040ez 2010 tax form Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. 1040ez 2010 tax form Example 4. 1040ez 2010 tax form Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. 1040ez 2010 tax form You must include the entire payment in income in 2012 since part of the services may be performed after the following year. 1040ez 2010 tax form Guarantee or warranty. 1040ez 2010 tax form   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. 1040ez 2010 tax form Prepaid rent. 1040ez 2010 tax form   You cannot postpone reporting income from prepaid rent. 1040ez 2010 tax form Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. 1040ez 2010 tax form You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. 1040ez 2010 tax form Books and records. 1040ez 2010 tax form   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. 1040ez 2010 tax form Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. 1040ez 2010 tax form IRS approval. 1040ez 2010 tax form   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. 1040ez 2010 tax form Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. 1040ez 2010 tax form However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. 1040ez 2010 tax form An agreement includes a gift certificate that can be redeemed for goods. 1040ez 2010 tax form Amounts due and payable are considered received. 1040ez 2010 tax form How to report payments. 1040ez 2010 tax form   Generally, include an advance payment in income in the year in which you receive it. 1040ez 2010 tax form However, you can use the alternative method, discussed next. 1040ez 2010 tax form Alternative method of reporting. 1040ez 2010 tax form   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. 1040ez 2010 tax form Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You are a retailer. 1040ez 2010 tax form You use an accrual method of accounting and account for the sale of goods when you ship the goods. 1040ez 2010 tax form You use this method for both tax and financial reporting purposes. 1040ez 2010 tax form You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. 1040ez 2010 tax form However, see Exception for inventory goods, later. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form You are a calendar year taxpayer. 1040ez 2010 tax form You manufacture household furniture and use an accrual method of accounting. 1040ez 2010 tax form Under this method, you accrue income for your financial reports when you ship the furniture. 1040ez 2010 tax form For tax purposes, you do not accrue income until the furniture has been delivered and accepted. 1040ez 2010 tax form In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. 1040ez 2010 tax form You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. 1040ez 2010 tax form For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. 1040ez 2010 tax form Information schedule. 1040ez 2010 tax form   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. 1040ez 2010 tax form Total advance payments received in the current tax year. 1040ez 2010 tax form Total advance payments received in earlier tax years and not included in income before the current tax year. 1040ez 2010 tax form Total payments received in earlier tax years included in income for the current tax year. 1040ez 2010 tax form Exception for inventory goods. 1040ez 2010 tax form   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. 1040ez 2010 tax form You account for the advance payment under the alternative method (discussed earlier). 1040ez 2010 tax form You have received a substantial advance payment on the agreement (discussed next). 1040ez 2010 tax form You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. 1040ez 2010 tax form These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. 1040ez 2010 tax form   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. 1040ez 2010 tax form You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. 1040ez 2010 tax form If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. 1040ez 2010 tax form Note. 1040ez 2010 tax form You must report any advance payments you receive after the second year in the year received. 1040ez 2010 tax form No further deferral is allowed. 1040ez 2010 tax form Substantial advance payments. 1040ez 2010 tax form   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. 1040ez 2010 tax form Example. 1040ez 2010 tax form You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. 1040ez 2010 tax form In 2008, you entered into a contract for the sale of goods properly includible in your inventory. 1040ez 2010 tax form The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. 1040ez 2010 tax form You receive the following advance payments under the contract. 1040ez 2010 tax form 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. 1040ez 2010 tax form In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. 1040ez 2010 tax form Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. 1040ez 2010 tax form   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. 1040ez 2010 tax form You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. 1040ez 2010 tax form If no such goods are on hand, then estimate the cost necessary to satisfy the contract. 1040ez 2010 tax form   No further deferral is allowed. 1040ez 2010 tax form You must include in gross income the advance payment you receive each remaining year of the contract. 1040ez 2010 tax form Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. 1040ez 2010 tax form IRS approval. 1040ez 2010 tax form   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. 1040ez 2010 tax form Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. 1040ez 2010 tax form The all-events test has been met. 1040ez 2010 tax form The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. 1040ez 2010 tax form Economic performance has occurred. 1040ez 2010 tax form Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. 1040ez 2010 tax form If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. 1040ez 2010 tax form If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 1040ez 2010 tax form Example. 1040ez 2010 tax form You are a calendar year taxpayer. 1040ez 2010 tax form You buy office supplies in December 2012. 1040ez 2010 tax form You receive the supplies and the bill in December, but you pay the bill in January 2013. 1040ez 2010 tax form You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. 1040ez 2010 tax form Your office supplies may qualify as a recurring item, discussed later. 1040ez 2010 tax form If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). 1040ez 2010 tax form Workers' compensation and tort liability. 1040ez 2010 tax form   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. 1040ez 2010 tax form If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. 1040ez 2010 tax form Taxes. 1040ez 2010 tax form   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. 1040ez 2010 tax form are paid. 1040ez 2010 tax form However, you can elect to treat taxes as a recurring item, discussed later. 1040ez 2010 tax form You can also elect to ratably accrue real estate taxes. 1040ez 2010 tax form See chapter 5 of Publication 535 for information about real estate taxes. 1040ez 2010 tax form Other liabilities. 1040ez 2010 tax form   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. 1040ez 2010 tax form Interest. 1040ez 2010 tax form   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. 1040ez 2010 tax form Compensation for services. 1040ez 2010 tax form   Generally, economic performance occurs as an employee renders service to the employer. 1040ez 2010 tax form However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. 1040ez 2010 tax form For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 1040ez 2010 tax form Vacation pay. 1040ez 2010 tax form   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. 1040ez 2010 tax form If you pay it later than this, you must deduct it in the year actually paid. 1040ez 2010 tax form An amount is vested if your right to it cannot be nullified or cancelled. 1040ez 2010 tax form Exception for recurring items. 1040ez 2010 tax form   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. 1040ez 2010 tax form The exception applies if all the following requirements are met. 1040ez 2010 tax form The all-events test, discussed earlier, is met. 1040ez 2010 tax form Economic performance occurs by the earlier of the following dates. 1040ez 2010 tax form 8½ months after the close of the year. 1040ez 2010 tax form The date you file a timely return (including extensions) for the year. 1040ez 2010 tax form The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. 1040ez 2010 tax form Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. 1040ez 2010 tax form This exception does not apply to workers' compensation or tort liabilities. 1040ez 2010 tax form Amended return. 1040ez 2010 tax form   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. 1040ez 2010 tax form You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. 1040ez 2010 tax form Recurrence and consistency. 1040ez 2010 tax form   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. 1040ez 2010 tax form A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. 1040ez 2010 tax form Materiality. 1040ez 2010 tax form   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. 1040ez 2010 tax form   An item considered material for financial statement purposes is also considered material for tax purposes. 1040ez 2010 tax form However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. 1040ez 2010 tax form Matching expenses with income. 1040ez 2010 tax form   Costs directly associated with the revenue of a period are properly allocable to that period. 1040ez 2010 tax form To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. 1040ez 2010 tax form fasab. 1040ez 2010 tax form gov/accepted. 1040ez 2010 tax form html) are an important factor. 1040ez 2010 tax form   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. 1040ez 2010 tax form Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. 1040ez 2010 tax form However, the matching requirement is considered met for certain types of expenses. 1040ez 2010 tax form These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. 1040ez 2010 tax form Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. 1040ez 2010 tax form Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. 1040ez 2010 tax form 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. 1040ez 2010 tax form If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. 1040ez 2010 tax form See Change in Accounting Method, later, for information on how to get IRS approval. 1040ez 2010 tax form See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. 1040ez 2010 tax form Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. 1040ez 2010 tax form Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. 1040ez 2010 tax form See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. 1040ez 2010 tax form Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. 1040ez 2010 tax form If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. 1040ez 2010 tax form However, see Exceptions, next. 1040ez 2010 tax form See also Accrual Method, earlier. 1040ez 2010 tax form To figure taxable income, you must value your inventory at the beginning and end of each tax year. 1040ez 2010 tax form To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. 1040ez 2010 tax form See Identifying Cost and Valuing Inventory, later. 1040ez 2010 tax form The rules for valuing inventory are not the same for all businesses. 1040ez 2010 tax form The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. 1040ez 2010 tax form Your inventory practices must be consistent from year to year. 1040ez 2010 tax form The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. 1040ez 2010 tax form Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. 1040ez 2010 tax form These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). 1040ez 2010 tax form A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. 1040ez 2010 tax form irs. 1040ez 2010 tax form gov/pub/irs-irbs/irb01–02. 1040ez 2010 tax form pdf. 1040ez 2010 tax form A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. 1040ez 2010 tax form irs. 1040ez 2010 tax form gov/pub/irs-irbs/irb02–18. 1040ez 2010 tax form pdf. 1040ez 2010 tax form In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). 1040ez 2010 tax form Qualifying taxpayer. 1040ez 2010 tax form   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). 1040ez 2010 tax form Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. 1040ez 2010 tax form You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. 1040ez 2010 tax form Gross receipts test for qualifying taxpayers. 1040ez 2010 tax form   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. 1040ez 2010 tax form List each of the test years. 1040ez 2010 tax form For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. 1040ez 2010 tax form Step 2. 1040ez 2010 tax form Determine your average annual gross receipts for each test year listed in Step 1. 1040ez 2010 tax form Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. 1040ez 2010 tax form Step 3. 1040ez 2010 tax form You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. 1040ez 2010 tax form Qualifying small business taxpayer. 1040ez 2010 tax form   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). 1040ez 2010 tax form Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. 1040ez 2010 tax form You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. 1040ez 2010 tax form Your principle business activity is an eligible business. 1040ez 2010 tax form See Eligible business, later. 1040ez 2010 tax form You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. 1040ez 2010 tax form Note. 1040ez 2010 tax form Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. 1040ez 2010 tax form A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. 1040ez 2010 tax form See Special rules for farming businesses under Cash Method, earlier. 1040ez 2010 tax form Gross receipts test for qualifying small business taxpayers. 1040ez 2010 tax form   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. 1040ez 2010 tax form List each of the test years. 1040ez 2010 tax form For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. 1040ez 2010 tax form Step 2. 1040ez 2010 tax form Determine your average annual gross receipts for each test year listed in Step 1. 1040ez 2010 tax form Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. 1040ez 2010 tax form Step 3. 1040ez 2010 tax form You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. 1040ez 2010 tax form Eligible business. 1040ez 2010 tax form   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. 1040ez 2010 tax form You have an eligible business if you meet any of the following requirements. 1040ez 2010 tax form Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). 1040ez 2010 tax form NAICS codes 31-33 (manufacturing). 1040ez 2010 tax form NAICS code 42 (wholesale trade). 1040ez 2010 tax form NAICS codes 44-45 (retail trade). 1040ez 2010 tax form NAICS codes 5111 and 5122 (information industries). 1040ez 2010 tax form Your principal business activity is the provision of services, including the provision of property incident to those services. 1040ez 2010 tax form Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. 1040ez 2010 tax form   Information about the NAICS codes can be found at http://www. 1040ez 2010 tax form census. 1040ez 2010 tax form gov/naics or in the instructions for your federal income tax return. 1040ez 2010 tax form Gross receipts. 1040ez 2010 tax form   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. 1040ez 2010 tax form See the definit
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Page Last Reviewed or Updated: 19-Mar-2014

The 1040ez 2010 Tax Form

1040ez 2010 tax form 1. 1040ez 2010 tax form   Travel Table of Contents Traveling Away From HomeTax Home Tax Home Different From Family Home Temporary Assignment or Job What Travel Expenses Are Deductible?Employee. 1040ez 2010 tax form Business associate. 1040ez 2010 tax form Bona fide business purpose. 1040ez 2010 tax form Meals Travel in the United States Travel Outside the United States Luxury Water Travel Conventions If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. 1040ez 2010 tax form This chapter discusses: Traveling away from home, Temporary assignment or job, and What travel expenses are deductible. 1040ez 2010 tax form It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses. 1040ez 2010 tax form Travel expenses defined. 1040ez 2010 tax form   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. 1040ez 2010 tax form   An ordinary expense is one that is common and accepted in your trade or business. 1040ez 2010 tax form A necessary expense is one that is helpful and appropriate for your business. 1040ez 2010 tax form An expense does not have to be required to be considered necessary. 1040ez 2010 tax form   You will find examples of deductible travel expenses in Table 1-1 , later. 1040ez 2010 tax form Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. 1040ez 2010 tax form This rest requirement is not satisfied by merely napping in your car. 1040ez 2010 tax form You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You are a railroad conductor. 1040ez 2010 tax form You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. 1040ez 2010 tax form During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. 1040ez 2010 tax form You are considered to be away from home. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form You are a truck driver. 1040ez 2010 tax form You leave your terminal and return to it later the same day. 1040ez 2010 tax form You get an hour off at your turnaround point to eat. 1040ez 2010 tax form Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. 1040ez 2010 tax form Members of the Armed Forces. 1040ez 2010 tax form   If you are a member of the U. 1040ez 2010 tax form S. 1040ez 2010 tax form Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. 1040ez 2010 tax form You cannot deduct your expenses for meals and lodging. 1040ez 2010 tax form You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. 1040ez 2010 tax form If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. 1040ez 2010 tax form   A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes. 1040ez 2010 tax form Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. 1040ez 2010 tax form Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. 1040ez 2010 tax form It includes the entire city or general area in which your business or work is located. 1040ez 2010 tax form If you have more than one regular place of business, your tax home is your main place of business. 1040ez 2010 tax form See Main place of business or work , later. 1040ez 2010 tax form If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. 1040ez 2010 tax form See No main place of business or work , later. 1040ez 2010 tax form If you do not have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. 1040ez 2010 tax form As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. 1040ez 2010 tax form Main place of business or work. 1040ez 2010 tax form   If you have more than one place of work, consider the following when determining which one is your main place of business or work. 1040ez 2010 tax form The total time you ordinarily spend in each place. 1040ez 2010 tax form The level of your business activity in each place. 1040ez 2010 tax form Whether your income from each place is significant or insignificant. 1040ez 2010 tax form Example. 1040ez 2010 tax form You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. 1040ez 2010 tax form You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. 1040ez 2010 tax form Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. 1040ez 2010 tax form No main place of business or work. 1040ez 2010 tax form   You may have a tax home even if you do not have a regular or main place of work. 1040ez 2010 tax form Your tax home may be the home where you regularly live. 1040ez 2010 tax form Factors used to determine tax home. 1040ez 2010 tax form   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. 1040ez 2010 tax form You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. 1040ez 2010 tax form You have living expenses at your main home that you duplicate because your business requires you to be away from that home. 1040ez 2010 tax form You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. 1040ez 2010 tax form   If you satisfy all three factors, your tax home is the home where you regularly live. 1040ez 2010 tax form If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. 1040ez 2010 tax form If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You are single and live in Boston in an apartment you rent. 1040ez 2010 tax form You have worked for your employer in Boston for a number of years. 1040ez 2010 tax form Your employer enrolls you in a 12-month executive training program. 1040ez 2010 tax form You do not expect to return to work in Boston after you complete your training. 1040ez 2010 tax form During your training, you do not do any work in Boston. 1040ez 2010 tax form Instead, you receive classroom and on-the-job training throughout the United States. 1040ez 2010 tax form You keep your apartment in Boston and return to it frequently. 1040ez 2010 tax form You use your apartment to conduct your personal business. 1040ez 2010 tax form You also keep up your community contacts in Boston. 1040ez 2010 tax form When you complete your training, you are transferred to Los Angeles. 1040ez 2010 tax form You do not satisfy factor (1) because you did not work in Boston. 1040ez 2010 tax form You satisfy factor (2) because you had duplicate living expenses. 1040ez 2010 tax form You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. 1040ez 2010 tax form Therefore, you have a tax home in Boston. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form You are an outside salesperson with a sales territory covering several states. 1040ez 2010 tax form Your employer's main office is in Newark, but you do not conduct any business there. 1040ez 2010 tax form Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. 1040ez 2010 tax form You have a room in your married sister's house in Dayton. 1040ez 2010 tax form You stay there for one or two weekends a year, but you do no work in the area. 1040ez 2010 tax form You do not pay your sister for the use of the room. 1040ez 2010 tax form You do not satisfy any of the three factors listed earlier. 1040ez 2010 tax form You are an itinerant and have no tax home. 1040ez 2010 tax form Tax Home Different From Family Home If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. 1040ez 2010 tax form You also cannot deduct the cost of meals and lodging while at your tax home. 1040ez 2010 tax form See Example 1 , later. 1040ez 2010 tax form If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. 1040ez 2010 tax form See Example 2 , later. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You are a truck driver and you and your family live in Tucson. 1040ez 2010 tax form You are employed by a trucking firm that has its terminal in Phoenix. 1040ez 2010 tax form At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. 1040ez 2010 tax form You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. 1040ez 2010 tax form This is because Phoenix is your tax home. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form Your family home is in Pittsburgh, where you work 12 weeks a year. 1040ez 2010 tax form The rest of the year you work for the same employer in Baltimore. 1040ez 2010 tax form In Baltimore, you eat in restaurants and sleep in a rooming house. 1040ez 2010 tax form Your salary is the same whether you are in Pittsburgh or Baltimore. 1040ez 2010 tax form Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. 1040ez 2010 tax form You cannot deduct any expenses you have for meals and lodging there. 1040ez 2010 tax form However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. 1040ez 2010 tax form You can deduct the cost of your round trip between Baltimore and Pittsburgh. 1040ez 2010 tax form You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. 1040ez 2010 tax form Temporary Assignment or Job You may regularly work at your tax home and also work at another location. 1040ez 2010 tax form It may not be practical to return to your tax home from this other location at the end of each work day. 1040ez 2010 tax form Temporary assignment vs. 1040ez 2010 tax form indefinite assignment. 1040ez 2010 tax form   If your assignment or job away from your main place of work is temporary, your tax home does not change. 1040ez 2010 tax form You are considered to be away from home for the whole period you are away from your main place of work. 1040ez 2010 tax form You can deduct your travel expenses if they otherwise qualify for deduction. 1040ez 2010 tax form Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. 1040ez 2010 tax form    However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. 1040ez 2010 tax form An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. 1040ez 2010 tax form   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. 1040ez 2010 tax form You may be able to deduct the cost of relocating to your new tax home as a moving expense. 1040ez 2010 tax form See Publication 521 for more information. 1040ez 2010 tax form Exception for federal crime investigations or prosecutions. 1040ez 2010 tax form   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. 1040ez 2010 tax form This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility. 1040ez 2010 tax form   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. 1040ez 2010 tax form Determining temporary or indefinite. 1040ez 2010 tax form   You must determine whether your assignment is temporary or indefinite when you start work. 1040ez 2010 tax form If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. 1040ez 2010 tax form An assignment or job that is initially temporary may become indefinite due to changed circumstances. 1040ez 2010 tax form A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. 1040ez 2010 tax form   The following examples illustrate whether an assignment or job is temporary or indefinite. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form You are a construction worker. 1040ez 2010 tax form You live and regularly work in Los Angeles. 1040ez 2010 tax form You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. 1040ez 2010 tax form Your tax home is Los Angeles. 1040ez 2010 tax form Because of a shortage of work, you took a job on a construction project in Fresno. 1040ez 2010 tax form Your job was scheduled to end in 8 months. 1040ez 2010 tax form The job actually lasted 10 months. 1040ez 2010 tax form You realistically expected the job in Fresno to last 8 months. 1040ez 2010 tax form The job actually did last less than 1 year. 1040ez 2010 tax form The job is temporary and your tax home is still in Los Angeles. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. 1040ez 2010 tax form The job actually was completed in 10 months. 1040ez 2010 tax form Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. 1040ez 2010 tax form You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. 1040ez 2010 tax form Example 3. 1040ez 2010 tax form The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. 1040ez 2010 tax form After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). 1040ez 2010 tax form Initially, you realistically expected the job in Fresno to last for only 9 months. 1040ez 2010 tax form However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. 1040ez 2010 tax form You can only deduct your travel expenses for the first 8 months. 1040ez 2010 tax form You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. 1040ez 2010 tax form Going home on days off. 1040ez 2010 tax form   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. 1040ez 2010 tax form You cannot deduct the cost of your meals and lodging there. 1040ez 2010 tax form However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. 1040ez 2010 tax form You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. 1040ez 2010 tax form   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. 1040ez 2010 tax form In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. 1040ez 2010 tax form Probationary work period. 1040ez 2010 tax form   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. 1040ez 2010 tax form You cannot deduct any of your expenses for meals and lodging during the probationary period. 1040ez 2010 tax form What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. 1040ez 2010 tax form You can deduct ordinary and necessary expenses you have when you travel away from home on business. 1040ez 2010 tax form The type of expense you can deduct depends on the facts and your circumstances. 1040ez 2010 tax form Table 1-1 summarizes travel expenses you may be able to deduct. 1040ez 2010 tax form You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. 1040ez 2010 tax form When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. 1040ez 2010 tax form You can use a log, diary, notebook, or any other written record to keep track of your expenses. 1040ez 2010 tax form The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5). 1040ez 2010 tax form Separating costs. 1040ez 2010 tax form   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. 1040ez 2010 tax form You must have a reasonable basis for making this allocation. 1040ez 2010 tax form For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. 1040ez 2010 tax form Travel expenses for another individual. 1040ez 2010 tax form    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. 1040ez 2010 tax form Employee. 1040ez 2010 tax form   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. 1040ez 2010 tax form Business associate. 1040ez 2010 tax form   If a business associate travels with you and meets the conditions in (2) and (3), earlier, you can deduct the travel expenses you have for that person. 1040ez 2010 tax form A business associate is someone with whom you could reasonably expect to actively conduct business. 1040ez 2010 tax form A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. 1040ez 2010 tax form Bona fide business purpose. 1040ez 2010 tax form   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. 1040ez 2010 tax form Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. 1040ez 2010 tax form Table 1-1. 1040ez 2010 tax form Travel Expenses You Can Deduct   This chart summarizes expenses you can deduct when you travel away from home for business purposes. 1040ez 2010 tax form IF you have expenses for. 1040ez 2010 tax form . 1040ez 2010 tax form . 1040ez 2010 tax form THEN you can deduct the cost of. 1040ez 2010 tax form . 1040ez 2010 tax form . 1040ez 2010 tax form transportation travel by airplane, train, bus, or car between your home and your business destination. 1040ez 2010 tax form If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. 1040ez 2010 tax form If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits. 1040ez 2010 tax form taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. 1040ez 2010 tax form baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. 1040ez 2010 tax form car operating and maintaining your car when traveling away from home on business. 1040ez 2010 tax form You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. 1040ez 2010 tax form If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 1040ez 2010 tax form lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 1040ez 2010 tax form Meals include amounts spent for food, beverages, taxes, and related tips. 1040ez 2010 tax form See Meals for additional rules and limits. 1040ez 2010 tax form cleaning dry cleaning and laundry. 1040ez 2010 tax form telephone business calls while on your business trip. 1040ez 2010 tax form This includes business communication by fax machine or other communication devices. 1040ez 2010 tax form tips tips you pay for any expenses in this chart. 1040ez 2010 tax form other other similar ordinary and necessary expenses related to your business travel. 1040ez 2010 tax form These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. 1040ez 2010 tax form Example. 1040ez 2010 tax form Jerry drives to Chicago on business and takes his wife, Linda, with him. 1040ez 2010 tax form Linda is not Jerry's employee. 1040ez 2010 tax form Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. 1040ez 2010 tax form The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. 1040ez 2010 tax form Her expenses are not deductible. 1040ez 2010 tax form Jerry pays $199 a day for a double room. 1040ez 2010 tax form A single room costs $149 a day. 1040ez 2010 tax form He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. 1040ez 2010 tax form If he uses public transportation, he can deduct only his fare. 1040ez 2010 tax form Meals You can deduct the cost of meals in either of the following situations. 1040ez 2010 tax form It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. 1040ez 2010 tax form The meal is business-related entertainment. 1040ez 2010 tax form Business-related entertainment is discussed in chapter 2 . 1040ez 2010 tax form The following discussion deals only with meals that are not business-related entertainment. 1040ez 2010 tax form Lavish or extravagant. 1040ez 2010 tax form   You cannot deduct expenses for meals that are lavish or extravagant. 1040ez 2010 tax form An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. 1040ez 2010 tax form Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 1040ez 2010 tax form 50% limit on meals. 1040ez 2010 tax form   You can figure your meals expense using either of the following methods. 1040ez 2010 tax form Actual cost. 1040ez 2010 tax form The standard meal allowance. 1040ez 2010 tax form Both of these methods are explained below. 1040ez 2010 tax form But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. 1040ez 2010 tax form   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. 1040ez 2010 tax form If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. 1040ez 2010 tax form Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. 1040ez 2010 tax form Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. 1040ez 2010 tax form If you use this method, you must keep records of your actual cost. 1040ez 2010 tax form Standard Meal Allowance Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. 1040ez 2010 tax form It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. 1040ez 2010 tax form The set amount varies depending on where and when you travel. 1040ez 2010 tax form In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . 1040ez 2010 tax form If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. 1040ez 2010 tax form See the recordkeeping rules for travel in chapter 5 . 1040ez 2010 tax form Incidental expenses. 1040ez 2010 tax form   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. 1040ez 2010 tax form   Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. 1040ez 2010 tax form Incidental-expenses-only method. 1040ez 2010 tax form   You can use an optional method (instead of actual cost) for deducting incidental expenses only. 1040ez 2010 tax form The amount of the deduction is $5 a day. 1040ez 2010 tax form You can use this method only if you did not pay or incur any meal expenses. 1040ez 2010 tax form You cannot use this method on any day that you use the standard meal allowance. 1040ez 2010 tax form This method is subject to the proration rules for partial days. 1040ez 2010 tax form See Travel for days you depart and return , later in this chapter. 1040ez 2010 tax form Note. 1040ez 2010 tax form The incidental-expenses-only method is not subject to the 50% limit discussed below. 1040ez 2010 tax form Federal employees should refer to the Federal Travel Regulations at www. 1040ez 2010 tax form gsa. 1040ez 2010 tax form gov. 1040ez 2010 tax form Find the “Most Requested Links” on the upper left and click on “Regulations: FAR, FMR, FTR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. 1040ez 2010 tax form 50% limit may apply. 1040ez 2010 tax form   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. 1040ez 2010 tax form If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. 1040ez 2010 tax form The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6. 1040ez 2010 tax form There is no optional standard lodging amount similar to the standard meal allowance. 1040ez 2010 tax form Your allowable lodging expense deduction is your actual cost. 1040ez 2010 tax form Who can use the standard meal allowance. 1040ez 2010 tax form   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. 1040ez 2010 tax form Use of the standard meal allowance for other travel. 1040ez 2010 tax form   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. 1040ez 2010 tax form You can also use it to figure your meal expenses when you travel for qualifying educational purposes. 1040ez 2010 tax form You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. 1040ez 2010 tax form Amount of standard meal allowance. 1040ez 2010 tax form   The standard meal allowance is the federal M&IE rate. 1040ez 2010 tax form For travel in 2013, the rate for most small localities in the United States is $46 a day. 1040ez 2010 tax form    Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. 1040ez 2010 tax form    You can find this information (organized by state) on the Internet at www. 1040ez 2010 tax form gsa. 1040ez 2010 tax form gov/perdiem. 1040ez 2010 tax form Enter a zip code or select a city and state for the per diem rates for the current fiscal year. 1040ez 2010 tax form Per diem rates for prior fiscal years are available by using the drop down menu under “Search by State. 1040ez 2010 tax form ”   Per diem rates are listed by the Federal government's fiscal year which runs from October 1 to September 30. 1040ez 2010 tax form You can choose to use the rates from the 2013 fiscal year per diem tables or the rates from the 2014 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. 1040ez 2010 tax form   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. 1040ez 2010 tax form If you work in the transportation industry, however, see Special rate for transportation workers , later. 1040ez 2010 tax form Standard meal allowance for areas outside the continental United States. 1040ez 2010 tax form   The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. 1040ez 2010 tax form The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. 1040ez 2010 tax form S. 1040ez 2010 tax form Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. 1040ez 2010 tax form The Department of State establishes per diem rates for all other foreign areas. 1040ez 2010 tax form    You can access per diem rates for non-foreign areas outside the continental United States at: www. 1040ez 2010 tax form defensetravel. 1040ez 2010 tax form dod. 1040ez 2010 tax form mil/site/perdiemCalc. 1040ez 2010 tax form cfm. 1040ez 2010 tax form You can access all other foreign per diem rates at: www. 1040ez 2010 tax form state. 1040ez 2010 tax form gov/travel/. 1040ez 2010 tax form Click on “Travel Per Diem Allowances for Foreign Areas,” under “Foreign Per Diem Rates” to obtain the latest foreign per diem rates. 1040ez 2010 tax form Special rate for transportation workers. 1040ez 2010 tax form   You can use a special standard meal allowance if you work in the transportation industry. 1040ez 2010 tax form You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. 1040ez 2010 tax form If this applies to you, you can claim a standard meal allowance of $59 a day ($65 for travel outside the continental United States). 1040ez 2010 tax form   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. 1040ez 2010 tax form If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. 1040ez 2010 tax form Travel for days you depart and return. 1040ez 2010 tax form   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). 1040ez 2010 tax form You can do so by one of two methods. 1040ez 2010 tax form Method 1: You can claim 3/4 of the standard meal allowance. 1040ez 2010 tax form Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. 1040ez 2010 tax form Example. 1040ez 2010 tax form Jen is employed in New Orleans as a convention planner. 1040ez 2010 tax form In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. 1040ez 2010 tax form She left her home in New Orleans at 10 a. 1040ez 2010 tax form m. 1040ez 2010 tax form on Wednesday and arrived in Washington, DC, at 5:30 p. 1040ez 2010 tax form m. 1040ez 2010 tax form After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. 1040ez 2010 tax form m. 1040ez 2010 tax form Jen's employer gave her a flat amount to cover her expenses and included it with her wages. 1040ez 2010 tax form Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. 1040ez 2010 tax form Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. 1040ez 2010 tax form For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. 1040ez 2010 tax form Travel in the United States The following discussion applies to travel in the United States. 1040ez 2010 tax form For this purpose, the United States includes the 50 states and the District of Columbia. 1040ez 2010 tax form The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. 1040ez 2010 tax form See Part of Trip Outside the United States , later. 1040ez 2010 tax form Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. 1040ez 2010 tax form If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. 1040ez 2010 tax form These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. 1040ez 2010 tax form Example. 1040ez 2010 tax form You work in Atlanta and take a business trip to New Orleans in May. 1040ez 2010 tax form Your business travel totals 850 miles round trip. 1040ez 2010 tax form On your way, you stop in Mobile to visit your parents. 1040ez 2010 tax form You spend $2,120 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. 1040ez 2010 tax form If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,820. 1040ez 2010 tax form You can deduct $1,820 for your trip, including the cost of round-trip transportation to and from New Orleans. 1040ez 2010 tax form The deduction for your meals is subject to the 50% limit on meals mentioned earlier. 1040ez 2010 tax form Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. 1040ez 2010 tax form However, you can deduct any expenses you have while at your destination that are directly related to your business. 1040ez 2010 tax form A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. 1040ez 2010 tax form The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. 1040ez 2010 tax form Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. 1040ez 2010 tax form For the part of your trip that is inside the United States, use the rules for travel in the United States. 1040ez 2010 tax form Travel outside the United States does not include travel from one point in the United States to another point in the United States. 1040ez 2010 tax form The following discussion can help you determine whether your trip was entirely within the United States. 1040ez 2010 tax form Public transportation. 1040ez 2010 tax form   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. 1040ez 2010 tax form Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . 1040ez 2010 tax form Example. 1040ez 2010 tax form You fly from New York to Puerto Rico with a scheduled stop in Miami. 1040ez 2010 tax form You return to New York nonstop. 1040ez 2010 tax form The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. 1040ez 2010 tax form Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. 1040ez 2010 tax form Private car. 1040ez 2010 tax form   Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States. 1040ez 2010 tax form Example. 1040ez 2010 tax form You travel by car from Denver to Mexico City and return. 1040ez 2010 tax form Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. 1040ez 2010 tax form The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. 1040ez 2010 tax form Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. 1040ez 2010 tax form For this purpose, the United States includes the 50 states and the District of Columbia. 1040ez 2010 tax form How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. 1040ez 2010 tax form Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. 1040ez 2010 tax form Travel entirely for business. 1040ez 2010 tax form   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. 1040ez 2010 tax form Travel considered entirely for business. 1040ez 2010 tax form   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. 1040ez 2010 tax form Exception 1 - No substantial control. 1040ez 2010 tax form   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. 1040ez 2010 tax form The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. 1040ez 2010 tax form   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, and Are not related to your employer, or Are not a managing executive. 1040ez 2010 tax form    “Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances . 1040ez 2010 tax form   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. 1040ez 2010 tax form   A self-employed person generally has substantial control over arranging business trips. 1040ez 2010 tax form Exception 2 - Outside United States no more than a week. 1040ez 2010 tax form   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. 1040ez 2010 tax form One week means 7 consecutive days. 1040ez 2010 tax form In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. 1040ez 2010 tax form Example. 1040ez 2010 tax form You traveled to Brussels primarily for business. 1040ez 2010 tax form You left Denver on Tuesday and flew to New York. 1040ez 2010 tax form On Wednesday, you flew from New York to Brussels, arriving the next morning. 1040ez 2010 tax form On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. 1040ez 2010 tax form You flew back to New York, arriving Wednesday afternoon. 1040ez 2010 tax form On Thursday, you flew back to Denver. 1040ez 2010 tax form Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. 1040ez 2010 tax form This is because the day you depart does not count as a day outside the United States. 1040ez 2010 tax form You can deduct your cost of the round-trip flight between Denver and Brussels. 1040ez 2010 tax form You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. 1040ez 2010 tax form However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. 1040ez 2010 tax form Exception 3 - Less than 25% of time on personal activities. 1040ez 2010 tax form   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. 1040ez 2010 tax form For this purpose, count both the day your trip began and the day it ended. 1040ez 2010 tax form Example. 1040ez 2010 tax form You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. 1040ez 2010 tax form You then flew back to Seattle. 1040ez 2010 tax form You spent 1 day flying in each direction. 1040ez 2010 tax form Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. 1040ez 2010 tax form The amount you can deduct is the cost of the round-trip plane fare and 16 days of meals (subject to the 50% limit), lodging, and other related expenses. 1040ez 2010 tax form Exception 4 - Vacation not a major consideration. 1040ez 2010 tax form   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. 1040ez 2010 tax form Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. 1040ez 2010 tax form You can only deduct the business portion of your cost of getting to and from your destination. 1040ez 2010 tax form You must allocate the costs between your business and other activities to determine your deductible amount. 1040ez 2010 tax form See Travel allocation rules , later. 1040ez 2010 tax form You do not have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business . 1040ez 2010 tax form In those cases, you can deduct the total cost of getting to and from your destination. 1040ez 2010 tax form Travel allocation rules. 1040ez 2010 tax form   If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. 1040ez 2010 tax form The days you depart from and return to the United States are both counted as days outside the United States. 1040ez 2010 tax form   To figure the deductible amount of your round-trip travel expenses, use the following fraction. 1040ez 2010 tax form The numerator (top number) is the total number of business days outside the United States. 1040ez 2010 tax form The denominator (bottom number) is the total number of business and nonbusiness days of travel. 1040ez 2010 tax form Counting business days. 1040ez 2010 tax form   Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays. 1040ez 2010 tax form Transportation day. 1040ez 2010 tax form   Count as a business day any day you spend traveling to or from a business destination. 1040ez 2010 tax form However, if because of a nonbusiness activity you do not travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. 1040ez 2010 tax form Extra days for side trips or nonbusiness activities cannot be counted as business days. 1040ez 2010 tax form Presence required. 1040ez 2010 tax form   Count as a business day any day your presence is required at a particular place for a specific business purpose. 1040ez 2010 tax form Count it as a business day even if you spend most of the day on nonbusiness activities. 1040ez 2010 tax form Day spent on business. 1040ez 2010 tax form   If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. 1040ez 2010 tax form Also, count as a business day any day you are prevented from working because of circumstances beyond your control. 1040ez 2010 tax form Certain weekends and holidays. 1040ez 2010 tax form   Count weekends, holidays, and other necessary standby days as business days if they fall between business days. 1040ez 2010 tax form But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, do not count them as business days. 1040ez 2010 tax form Example 1. 1040ez 2010 tax form Your tax home is New York City. 1040ez 2010 tax form You travel to Quebec, where you have a business appointment on Friday. 1040ez 2010 tax form You have another appointment on the following Monday. 1040ez 2010 tax form Because your presence was required on both Friday and Monday, they are business days. 1040ez 2010 tax form Because the weekend is between business days, Saturday and Sunday are counted as business days. 1040ez 2010 tax form This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. 1040ez 2010 tax form Example 2. 1040ez 2010 tax form If, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. 1040ez 2010 tax form Nonbusiness activity on the way to or from your business destination. 1040ez 2010 tax form   If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. 1040ez 2010 tax form   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. 1040ez 2010 tax form   You determine the nonbusiness portion of that expense by multiplying it by a fraction. 1040ez 2010 tax form The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. 1040ez 2010 tax form Example. 1040ez 2010 tax form You live in New York. 1040ez 2010 tax form On May 4 you flew to Paris to attend a business conference that began on May 5. 1040ez 2010 tax form The conference ended at noon on May 14. 1040ez 2010 tax form That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. 1040ez 2010 tax form The primary purpose for the trip was to attend the conference. 1040ez 2010 tax form If you had not stopped in Dublin, you would have arrived home the evening of May 14. 1040ez 2010 tax form You do not meet any of the exceptions that would allow you to consider your travel entirely for business. 1040ez 2010 tax form May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days. 1040ez 2010 tax form You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris. 1040ez 2010 tax form You cannot deduct your expenses while in Dublin. 1040ez 2010 tax form You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin. 1040ez 2010 tax form You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. 1040ez 2010 tax form Round-trip airfare from New York to Dublin would have been $1,250. 1040ez 2010 tax form You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7/18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850). 1040ez 2010 tax form Your deductible air travel expense is $1,364 ($1,850 − $486). 1040ez 2010 tax form Nonbusiness activity at, near, or beyond business destination. 1040ez 2010 tax form   If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity. 1040ez 2010 tax form   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. 1040ez 2010 tax form   You determine the nonbusiness portion of that expense by multiplying it by a fraction. 1040ez 2010 tax form The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. 1040ez 2010 tax form   None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible. 1040ez 2010 tax form Example. 1040ez 2010 tax form Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation. 1040ez 2010 tax form You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. 1040ez 2010 tax form In addition, you cannot deduct 7/18 of the airfare and other expenses from New York to Paris and back to New York. 1040ez 2010 tax form You can deduct 11/18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your meals (subject to the 50% limit), lodging, and any other business expenses you had in Paris. 1040ez 2010 tax form (Assume these expenses total $4,939. 1040ez 2010 tax form ) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 (11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris. 1040ez 2010 tax form Other methods. 1040ez 2010 tax form   You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States. 1040ez 2010 tax form Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. 1040ez 2010 tax form However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. 1040ez 2010 tax form Example. 1040ez 2010 tax form The university from which you graduated has a continuing education program for members of its alumni association. 1040ez 2010 tax form This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. 1040ez 2010 tax form However, none of the conferences are directed toward specific occupations or professions. 1040ez 2010 tax form It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests. 1040ez 2010 tax form Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. 1040ez 2010 tax form These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. 1040ez 2010 tax form Professional conference directors schedule and conduct the sessions. 1040ez 2010 tax form Participants can choose those sessions they wish to attend. 1040ez 2010 tax form You can participate in this program since you are a member of the alumni association. 1040ez 2010 tax form You and your family take one of the trips. 1040ez 2010 tax form You spend about 2 hours at each of the planned sessions. 1040ez 2010 tax form The rest of the time you go touring and sightseeing with your family. 1040ez 2010 tax form The trip lasts less than 1 week. 1040ez 2010 tax form Your travel expenses for the trip are not deductible since the trip was primarily a vacation. 1040ez 2010 tax form However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. 1040ez 2010 tax form These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses. 1040ez 2010 tax form Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. 1040ez 2010 tax form The limit is twice the highest federal per diem rate allowable at the time of your travel. 1040ez 2010 tax form (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes. 1040ez 2010 tax form ) Daily limit on luxury water travel. 1040ez 2010 tax form   The highest federal per diem rate allowed and the daily limit for luxury water travel in 2013 is shown in the following table. 1040ez 2010 tax form   2013 Dates Highest Federal Per Diem Daily Limit on Luxury Water Travel   Jan. 1040ez 2010 tax form 1 – Mar. 1040ez 2010 tax form 31 $367 $734   Apr. 1040ez 2010 tax form 1 – June 30 312 624   July 1 – Aug. 1040ez 2010 tax form 31 310 620   Sept. 1040ez 2010 tax form 1 – Sept. 1040ez 2010 tax form 30 366 732   Oct. 1040ez 2010 tax form 1 – Dec. 1040ez 2010 tax form 31 374 748 Example. 1040ez 2010 tax form Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. 1040ez 2010 tax form Her expense for the 6-day cruise was $5,200. 1040ez 2010 tax form Caroline's deduction for the cruise cannot exceed $3,744 (6 days × $624 daily limit). 1040ez 2010 tax form Meals and entertainment. 1040ez 2010 tax form   If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. 1040ez 2010 tax form For a discussion of the 50% Limit , see chapter 2. 1040ez 2010 tax form Example. 1040ez 2010 tax form In the previous example, Caroline's luxury water travel had a total cost of $5,200. 1040ez 2010 tax form Of that amount, $3,700 was separately stated as meals and entertainment. 1040ez 2010 tax form Caroline, who is self-employed, is not reimbursed for any of her travel expenses. 1040ez 2010 tax form Caroline figures her deductible travel expenses as follows. 1040ez 2010 tax form Meals and entertainment $3,700   50% limit × . 1040ez 2010 tax form 50   Allowable meals &     entertainment $1,850   Other travel expenses + 1,800   Allowable cost before the daily limit $3,650 Daily limit for May 2013 $624   Times number of days × 6   Maximum luxury water travel     deduction $3,744 Amount of allowable deduction $3,650 Caroline's deduction for her cruise is limited to $3,650, even though the limit on luxury water travel is slightly higher. 1040ez 2010 tax form Not separately stated. 1040ez 2010 tax form   If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment. 1040ez 2010 tax form Exceptions The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. 1040ez 2010 tax form See Cruise Ships under Conventions. 1040ez 2010 tax form Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. 1040ez 2010 tax form You cannot deduct the travel expenses for your family. 1040ez 2010 tax form If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. 1040ez 2010 tax form Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. 1040ez 2010 tax form You can deduct your travel expenses only if your attendance is connected to your own trade or business. 1040ez 2010 tax form Convention agenda. 1040ez 2010 tax form   The convention agenda or program generally shows the purpose of the convention. 1040ez 2010 tax form You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. 1040ez 2010 tax form The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. 1040ez 2010 tax form Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless: The meeting is directly related to your trade or business, and It is reasonable to hold the meeting outside the North American area. 1040ez 2010 tax form See Reasonableness test , later. 1040ez 2010 tax form If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States . 1040ez 2010 tax form North American area. 1040ez 2010 tax form   The North American area includes the following locations. 1040ez 2010 tax form American Samoa Johnston Island Antigua and Barbuda Kingman Reef Aruba Marshall Islands Bahamas Mexico Baker Island Micronesia Barbados Midway Islands Bermuda Netherlands Antilles Canada Northern Mariana Costa Rica Islands Dominica Palau Dominican Republic Palmyra Atoll Grenada Panama Guam Puerto Rico Guyana Trinidad and Tobago Honduras USA Howland Island U. 1040ez 2010 tax form S. 1040ez 2010 tax form Virgin Islands Jamaica Wake Island Jarvis Island   The North American area also includes U. 1040ez 2010 tax form S. 1040ez 2010 tax form islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia. 1040ez 2010 tax form Reasonableness test. 1040ez 2010 tax form   The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. 1040ez 2010 tax form The purpose of the meeting and the activities taking place at the meeting. 1040ez 2010 tax form The purposes and activities of the sponsoring organizations or groups. 1040ez 2010 tax form The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held. 1040ez 2010 tax form Other relevant factors you may present. 1040ez 2010 tax form Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. 1040ez 2010 tax form All ships that sail are considered cruise ships. 1040ez 2010 tax form You can deduct these expenses only if all of the following requirements are met. 1040ez 2010 tax form The convention, seminar, or meeting is directly related to your trade or business. 1040ez 2010 tax form The cruise ship is a vessel registered in the United States. 1040ez 2010 tax form All of the cruise ship's ports of call are in the United States or in possessions of the United States. 1040ez 2010 tax form You attach to your return a written statement signed by you that includes information about: The total days of the trip (not including the days of transportation to and from the cruise ship port), The number of hours each day that you devoted to scheduled business activities, and A program of the scheduled business activities of the meeting. 1040ez 2010 tax form You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes: A schedule of the business activities of each day of the meeting, and The number of hours you attended the scheduled business activities. 1040ez 2010 tax form Prev  Up  Next   Home   More Online Publications