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1040ez help Publication 557 - Additional Material Table of Contents Appendix. 1040ez help Sample Articles of Organization, continued Organization Reference Chart Section of 1986 Code Description of organization General nature of activities Application  Form Annual return required to be  filed Contributions  allowable 501(c)(1) Corporations Organized under Act of Congress (including Federal Credit Unions) Instrumentalities of the  United States No Form None Yes, if made for exclusively public purposes 501(c)(2) Title Holding Corporation For Exempt Organization Holding title to property of an  exempt organization 1024 9901 or 990-EZ8 No2 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Activities of nature implied by description of class of organization 1023 9901 or 990-EZ8, or 990-PF Yes, generally 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees Promotion of community welfare; charitable, educational, or recreational 1024 9901 or 990-EZ8 No, generally 2, 3 501(c)(5) Labor, Agricultural, and Horticultural Organizations Educational or instructive, the  purpose being to improve conditions of work, and to improve products of efficiency 1024 9901 or 990-EZ8 No2 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. 1040ez help Improvement of business  conditions of one or more lines of business 1024 9901 or 990-EZ8 No2 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 9901 or 990-EZ8 No2 501(c)(8) Fraternal Beneficiary Societies  and Associations Lodge providing for payment of life, sickness, accident or other benefits  to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. 1040ez help 501(c)(3) purposes 501(c)(9) Voluntary Employees Beneficiary Associations Providing for payment of life, sickness, accident, or other benefits to members 1024 9901 or 990-EZ8 No2 501(c)(10) Domestic Fraternal Societies  and Associations Lodge devoting its net earnings to charitable, fraternal, and other  specified purposes. 1040ez help No life, sickness, or accident benefits to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. 1040ez help 501(c)(3) purposes 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of retirement benefits Letter6 9901 or 990-EZ8 No2 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or  Irrigation Companies, Mutual or Cooperative Telephone Companies, etc. 1040ez help Activities of a mutually beneficial  nature similar to those implied by the description of class of organization 1024 9901 or 990-EZ8 No2 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9901 or 990-EZ8 Yes, generally 501(c)(14) State-Chartered Credit Unions,  Mutual Reserve Funds Loans to members Letter6 9901 or 990-EZ8 No2 501(c)(15) Mutual Insurance Companies or Associations Providing insurance to members substantially at cost 1024 9901 or 990-EZ8 No2 501(c)(16) Cooperative Organizations to  Finance Crop Operations Financing crop operations in  conjunction with activities of a marketing  or purchasing association Form 1120-C6 9901 or 990-EZ8 No2 501(c)(17) Supplemental Unemployment  Benefit Trusts Provides for payment of  supplemental unemployment compensation benefits 1024 9901 or 990-EZ8 No2 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) Payment of benefits under a  pension plan funded by employees Letter6 9901 or 990-EZ8 No2 501(c)(19) Post or Organization of Past or  Present Members of the Armed Forces Activities implied by nature of organization 1024 9901 or 990-EZ8 No, generally7 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy their liability for disability or  death due to black lung diseases Letter6 990-BL No4 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the  liability of employers withdrawing from  a multi-employer pension fund Letter6 9901 or 990-EZ8 No5 501(c)(23) Veterans' Organization (created before 1880) To provide insurance and other  benefits to veterans Letter6 9901 or 990-EZ8 No, generally7 501(c)(25) Title Holding Corporations or Trusts with Multiple Parent Corporations Holding title and paying over  income from property to 35 or fewer parents or beneficiaries 1024 9901 or 990-EZ8 No 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk Individuals Provides health care coverage to high-risk individuals Letter6 9901 or 990-EZ8 No 501(c)(27) State-Sponsored Workers' Compensation Reinsurance Organization Reimburses members for losses  under workers' compensation acts Letter6 9901 or 990-EZ8 No 501(c)(28) National Railroad Retirement Investment Trust Manages and invests the assets of the Railroad Retirement Account No Form 99011 No11 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which has received a loan or grant under the CO-OP program Letter and Form 871814 9901 No13 501(d) Religious and Apostolic Associations Regular business activities;  Communal religious community No Form 10659 No2 501(e) Cooperative Hospital Service Organizations Performs cooperative services for hospitals 1023 9901 or 990-EZ8 Yes 501(f) Cooperative Service Organizations  of Operating Educational Organizations Performs collective investment  services for educational organizations 1023 9901 or 990-EZ8 Yes 501(k) Child Care Organizations Provides care for children 1023 9901 or 990-EZ8 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. 1040ez help 501(c)(3) organizations 1023 9901 or 990-EZ8 Yes 501(q) Credit Counseling Organization Credit counseling services 1023 102312 No 521(a) Farmers' Cooperative Associations Cooperative marketing and  purchasing for agricultural procedures 1028 1120-C No 527 Political organizations A party, committee, fund,  association, etc. 1040ez help , that directly or indirectly accepts contributions or makes expenditures for political campaigns 8871 1120-POL10 9901 or 990-EZ8 No 1For exceptions to the filing requirement, see chapter 2 and the form instructions. 1040ez help Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. 1040ez help Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. 1040ez help    2An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. 1040ez help Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). 1040ez help    3Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. 1040ez help    4Deductible as a business expense to the extent allowed by section 192. 1040ez help    5Deductible as a business expense to the extent allowed by section 194A. 1040ez help 6Application is by letter to the address shown on Form 8718. 1040ez help A copy of the organizing document should be attached and the letter should be signed by an officer. 1040ez help    7Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. 1040ez help    8For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). 1040ez help    9Although the organization files a partnership return, all distributions are deemed dividends. 1040ez help The members are not entitled to pass through treatment of the organization's income or expenses. 1040ez help    10Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). 1040ez help    11Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). 1040ez help    12See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). 1040ez help Use Form 1024 if applying for recognition under section 501(c)(4). 1040ez help    13See section 501(c)(29) for details. 1040ez help    14See Revenue Procedure 2012-11, sec. 1040ez help 4. 1040ez help 01, 2012-7 I. 1040ez help R. 1040ez help B. 1040ez help 368, for details. 1040ez help Appendix. 1040ez help Sample Articles of Organization The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. 1040ez help You should bear in mind that requirements for these instruments may vary under applicable state law. 1040ez help See Private Foundations and Public Charities , earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption. 1040ez help DRAFT A  Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify: First: The name of the Corporation shall be . 1040ez help Second: The place in this state where the principal office of the Corporation is to be located is the City of , County. 1040ez help Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040ez help Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. 1040ez help No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. 1040ez help Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040ez help   If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation. 1040ez help ” Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. 1040ez help Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. 1040ez help   In witness whereof, we have hereunto subscribed our names this day of , 20. 1040ez help Appendix. 1040ez help Sample Articles of Organization, continued Draft B The Charitable Trust. 1040ez help Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows: First: This trust shall be called “The Charitable Trust. 1040ez help ” Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040ez help Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. 1040ez help The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. 1040ez help Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. 1040ez help No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. 1040ez help No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office. 1040ez help b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. 1040ez help On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. 1040ez help The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. 1040ez help Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. 1040ez help The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph. 1040ez help c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which do not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. 1040ez help It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040ez help d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of. 1040ez help Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040ez help An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. 1040ez help All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees. 1040ez help Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. 1040ez help The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. 1040ez help Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. 1040ez help Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. 1040ez help  None of the trustees shall be required to furnish any bond or surety. 1040ez help None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. 1040ez help  The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. 1040ez help A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. 1040ez help  The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter. 1040ez help Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers. 1040ez help a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority would not be considered proper and although all of the trust funds are invested in the securities of one company. 1040ez help No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security. 1040ez help b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust. 1040ez help c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust. 1040ez help d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage. 1040ez help e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities. 1040ez help f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees. 1040ez help Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise. 1040ez help Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office. 1040ez help Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. 1040ez help Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. 1040ez help No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. 1040ez help No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust. 1040ez help Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . 1040ez help Trustee Trustee Prev  Up  Next   Home   More Online Publications
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1040ez help 8. 1040ez help   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. 1040ez help Cash method. 1040ez help Car and Truck ExpensesOffice in the home. 1040ez help Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. 1040ez help InsuranceHow to figure the deduction. 1040ez help Interest Legal and Professional FeesTax preparation fees. 1040ez help Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. 1040ez help Taxi, commuter bus, and limousine. 1040ez help Baggage and shipping. 1040ez help Car or truck. 1040ez help Meals and lodging. 1040ez help Cleaning. 1040ez help Telephone. 1040ez help Tips. 1040ez help More information. 1040ez help Business Use of Your HomeExceptions to exclusive use. 1040ez help Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. 1040ez help These costs are known as business expenses. 1040ez help These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. 1040ez help To be deductible, a business expense must be both ordinary and necessary. 1040ez help An ordinary expense is one that is common and accepted in your field of business. 1040ez help A necessary expense is one that is helpful and appropriate for your business. 1040ez help An expense does not have to be indispensable to be considered necessary. 1040ez help For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. 1040ez help If you have an expense that is partly for business and partly personal, separate the personal part from the business part. 1040ez help The personal part is not deductible. 1040ez help Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. 1040ez help Bad Debts If someone owes you money you cannot collect, you have a bad debt. 1040ez help There are two kinds of bad debts, business bad debts and nonbusiness bad debts. 1040ez help A business bad debt is generally one that comes from operating your trade or business. 1040ez help You may be able to deduct business bad debts as an expense on your business tax return. 1040ez help Business bad debt. 1040ez help   A business bad debt is a loss from the worthlessness of a debt that was either of the following. 1040ez help Created or acquired in your business. 1040ez help Closely related to your business when it became partly or totally worthless. 1040ez help A debt is closely related to your business if your primary motive for incurring the debt is a business reason. 1040ez help   Business bad debts are mainly the result of credit sales to customers. 1040ez help They can also be the result of loans to suppliers, clients, employees, or distributors. 1040ez help Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. 1040ez help If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. 1040ez help    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. 1040ez help Accrual method. 1040ez help   If you use an accrual method of accounting, you normally report income as you earn it. 1040ez help You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. 1040ez help Cash method. 1040ez help   If you use the cash method of accounting, you normally report income when you receive payment. 1040ez help You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. 1040ez help More information. 1040ez help   For more information about business bad debts, see chapter 10 in Publication 535. 1040ez help Nonbusiness bad debts. 1040ez help   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). 1040ez help For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. 1040ez help Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. 1040ez help You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. 1040ez help You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. 1040ez help See Form 8936 and Form 8910 for more information. 1040ez help Local transportation expenses. 1040ez help   Local transportation expenses include the ordinary and necessary costs of all the following. 1040ez help Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. 1040ez help Tax home is defined later. 1040ez help Visiting clients or customers. 1040ez help Going to a business meeting away from your regular workplace. 1040ez help Getting from your home to a temporary workplace when you have one or more regular places of work. 1040ez help These temporary workplaces can be either within the area of your tax home or outside that area. 1040ez help Local business transportation does not include expenses you have while traveling away from home overnight. 1040ez help Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. 1040ez help However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. 1040ez help   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 1040ez help It includes the entire city or general area in which your business or work is located. 1040ez help Example. 1040ez help You operate a printing business out of rented office space. 1040ez help You use your van to deliver completed jobs to your customers. 1040ez help You can deduct the cost of round-trip transportation between your customers and your print shop. 1040ez help    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. 1040ez help These costs are personal commuting expenses. 1040ez help Office in the home. 1040ez help   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. 1040ez help For more information, see Business Use of Your Home, later. 1040ez help Example. 1040ez help You are a graphics designer. 1040ez help You operate your business out of your home. 1040ez help Your home qualifies as your principal place of business. 1040ez help You occasionally have to drive to your clients to deliver your completed work. 1040ez help You can deduct the cost of the round-trip transportation between your home and your clients. 1040ez help Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. 1040ez help Standard mileage rate. 1040ez help Actual expenses. 1040ez help Standard mileage rate. 1040ez help   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. 1040ez help For 2013, the standard mileage rate is 56. 1040ez help 5 cents per mile. 1040ez help    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. 1040ez help Choosing the standard mileage rate. 1040ez help   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. 1040ez help In later years, you can choose to use either the standard mileage rate or actual expenses. 1040ez help   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). 1040ez help Standard mileage rate not allowed. 1040ez help   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. 1040ez help Parking fees and tolls. 1040ez help   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 1040ez help (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 1040ez help ) Actual expenses. 1040ez help   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. 1040ez help    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. 1040ez help   Actual car expenses include the costs of the following items. 1040ez help Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. 1040ez help You can divide your expenses based on the miles driven for each purpose. 1040ez help Example. 1040ez help You are the sole proprietor of a flower shop. 1040ez help You drove your van 20,000 miles during the year. 1040ez help 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). 1040ez help You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. 1040ez help More information. 1040ez help   For more information about the rules for claiming car and truck expenses, see Publication 463. 1040ez help Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. 1040ez help The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 1040ez help For details, see chapter 11 in Publication 535. 1040ez help That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 1040ez help Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. 1040ez help You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. 1040ez help This method of deducting the cost of business property is called depreciation. 1040ez help The discussion here is brief. 1040ez help You will find more information about depreciation in Publication 946. 1040ez help What property can be depreciated?   You can depreciate property if it meets all the following requirements. 1040ez help It must be property you own. 1040ez help It must be used in business or held to produce income. 1040ez help You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. 1040ez help It must have a useful life that extends substantially beyond the year it is placed in service. 1040ez help It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 1040ez help You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. 1040ez help It must not be excepted property. 1040ez help This includes property placed in service and disposed of in the same year. 1040ez help Repairs. 1040ez help    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. 1040ez help You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. 1040ez help Depreciation method. 1040ez help   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). 1040ez help MACRS is discussed in detail in Publication 946. 1040ez help Section 179 deduction. 1040ez help   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. 1040ez help This deduction is known as the “section 179 deduction. 1040ez help ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). 1040ez help See IRC 179(e). 1040ez help   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. 1040ez help The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). 1040ez help Special rules apply to trucks and vans. 1040ez help For more information, see Publication 946. 1040ez help It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. 1040ez help    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. 1040ez help For more information, see the Instructions for Form 4562 or Publication 946. 1040ez help Listed property. 1040ez help   You must follow special rules and recordkeeping requirements when depreciating listed property. 1040ez help Listed property is any of the following. 1040ez help Most passenger automobiles. 1040ez help Most other property used for transportation. 1040ez help Any property of a type generally used for entertainment, recreation, or amusement. 1040ez help Certain computers and related peripheral equipment. 1040ez help   For more information about listed property, see Publication 946. 1040ez help Form 4562. 1040ez help   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. 1040ez help Depreciation on property placed in service during the current tax year. 1040ez help A section 179 deduction. 1040ez help Depreciation on any listed property (regardless of when it was placed in service). 1040ez help    If you have to use Form 4562, you must file Schedule C. 1040ez help You cannot use Schedule C-EZ. 1040ez help   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. 1040ez help The pay may be in cash, property, or services. 1040ez help To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. 1040ez help In addition, the pay must meet both the following tests. 1040ez help The pay must be reasonable. 1040ez help The pay must be for services performed. 1040ez help Chapter 2 in Publication 535 explains and defines these requirements. 1040ez help You cannot deduct your own salary or any personal withdrawals you make from your business. 1040ez help As a sole proprietor, you are not an employee of the business. 1040ez help If you had employees during the year, you must use Schedule C. 1040ez help You cannot use Schedule C-EZ. 1040ez help Kinds of pay. 1040ez help   Some of the ways you may provide pay to your employees are listed below. 1040ez help For an explanation of each of these items, see chapter 2 in Publication 535. 1040ez help Awards. 1040ez help Bonuses. 1040ez help Education expenses. 1040ez help Fringe benefits (discussed later). 1040ez help Loans or advances you do not expect the employee to repay if they are for personal services actually performed. 1040ez help Property you transfer to an employee as payment for services. 1040ez help Reimbursements for employee business expenses. 1040ez help Sick pay. 1040ez help Vacation pay. 1040ez help Fringe benefits. 1040ez help   A fringe benefit is a form of pay for the performance of services. 1040ez help The following are examples of fringe benefits. 1040ez help Benefits under qualified employee benefit programs. 1040ez help Meals and lodging. 1040ez help The use of a car. 1040ez help Flights on airplanes. 1040ez help Discounts on property or services. 1040ez help Memberships in country clubs or other social clubs. 1040ez help Tickets to entertainment or sporting events. 1040ez help   Employee benefit programs include the following. 1040ez help Accident and health plans. 1040ez help Adoption assistance. 1040ez help Cafeteria plans. 1040ez help Dependent care assistance. 1040ez help Educational assistance. 1040ez help Group-term life insurance coverage. 1040ez help Welfare benefit funds. 1040ez help   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. 1040ez help For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. 1040ez help If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. 1040ez help    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. 1040ez help For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 1040ez help Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. 1040ez help Fire, theft, flood, or similar insurance. 1040ez help Credit insurance that covers losses from business bad debts. 1040ez help Group hospitalization and medical insurance for employees, including long-term care insurance. 1040ez help Liability insurance. 1040ez help Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 1040ez help Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. 1040ez help Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 1040ez help Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 1040ez help Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 1040ez help If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. 1040ez help If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 1040ez help Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. 1040ez help Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 1040ez help Nondeductible premiums. 1040ez help   You cannot deduct premiums on the following kinds of insurance. 1040ez help Self-insurance reserve funds. 1040ez help You cannot deduct amounts credited to a reserve set up for self-insurance. 1040ez help This applies even if you cannot get business insurance coverage for certain business risks. 1040ez help However, your actual losses may be deductible. 1040ez help For more information, see Publication 547, Casualties, Disasters, and Thefts. 1040ez help Loss of earnings. 1040ez help You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. 1040ez help However, see item (8) in the previous list. 1040ez help Certain life insurance and annuities. 1040ez help For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. 1040ez help You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. 1040ez help A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. 1040ez help For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. 1040ez help The disallowance applies without regard to whom the policy covers. 1040ez help Insurance to secure a loan. 1040ez help If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. 1040ez help Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 1040ez help In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 1040ez help Self-employed health insurance deduction. 1040ez help   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. 1040ez help How to figure the deduction. 1040ez help   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 1040ez help However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. 1040ez help You have more than one source of income subject to self-employment tax. 1040ez help You file Form 2555 or Form 2555-EZ (relating to foreign earned income). 1040ez help You are using amounts paid for qualified long-term care insurance to figure the deduction. 1040ez help Prepayment. 1040ez help   You cannot deduct expenses in advance, even if you pay them in advance. 1040ez help This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 1040ez help Example. 1040ez help In 2013, you signed a 3-year insurance contract. 1040ez help Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. 1040ez help You can deduct in 2014 and 2015 the premium allocable to those years. 1040ez help More information. 1040ez help   For more information about deducting insurance, see chapter 6 in Publication 535. 1040ez help Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. 1040ez help Interest relates to your business if you use the proceeds of the loan for a business expense. 1040ez help It does not matter what type of property secures the loan. 1040ez help You can deduct interest on a debt only if you meet all of the following requirements. 1040ez help You are legally liable for that debt. 1040ez help Both you and the lender intend that the debt be repaid. 1040ez help You and the lender have a true debtor-creditor relationship. 1040ez help You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. 1040ez help If a loan is part business and part personal, you must divide the interest between the personal part and the business part. 1040ez help Example. 1040ez help In 2013, you paid $600 interest on a car loan. 1040ez help During 2013, you used the car 60% for business and 40% for personal purposes. 1040ez help You are claiming actual expenses on the car. 1040ez help You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. 1040ez help The remaining interest of $240 is a nondeductible personal expense. 1040ez help More information. 1040ez help   For more information about deducting interest, see chapter 4 in Publication 535. 1040ez help That chapter explains the following items. 1040ez help Interest you can deduct. 1040ez help Interest you cannot deduct. 1040ez help How to allocate interest between personal and business use. 1040ez help When to deduct interest. 1040ez help The rules for a below-market interest rate loan. 1040ez help (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 1040ez help ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. 1040ez help However, you usually cannot deduct legal fees you pay to acquire business assets. 1040ez help Add them to the basis of the property. 1040ez help If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. 1040ez help The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. 1040ez help For more information, see Publication 529, Miscellaneous Deductions. 1040ez help Tax preparation fees. 1040ez help   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. 1040ez help You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 1040ez help   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. 1040ez help Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. 1040ez help SEP (Simplified Employee Pension) plans. 1040ez help SIMPLE (Savings Incentive Match Plan for Employees) plans. 1040ez help Qualified plans (including Keogh or H. 1040ez help R. 1040ez help 10 plans). 1040ez help SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. 1040ez help You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. 1040ez help If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. 1040ez help You can also deduct trustees' fees if contributions to the plan do not cover them. 1040ez help Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. 1040ez help You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. 1040ez help Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. 1040ez help These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. 1040ez help For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 1040ez help Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. 1040ez help Rent Expense Rent is any amount you pay for the use of property you do not own. 1040ez help In general, you can deduct rent as a business expense only if the rent is for property you use in your business. 1040ez help If you have or will receive equity in or title to the property, you cannot deduct the rent. 1040ez help Unreasonable rent. 1040ez help   You cannot take a rental deduction for unreasonable rents. 1040ez help Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 1040ez help Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 1040ez help Rent is not unreasonable just because it is figured as a percentage of gross receipts. 1040ez help   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 1040ez help For a list of the other related persons, see section 267 of the Internal Revenue Code. 1040ez help Rent on your home. 1040ez help   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 1040ez help You must meet the requirements for business use of your home. 1040ez help For more information, see Business Use of Your Home , later. 1040ez help Rent paid in advance. 1040ez help   Generally, rent paid in your business is deductible in the year paid or accrued. 1040ez help If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 1040ez help You can deduct the rest of your payment only over the period to which it applies. 1040ez help More information. 1040ez help   For more information about rent, see chapter 3 in Publication 535. 1040ez help Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. 1040ez help Income taxes. 1040ez help   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. 1040ez help You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. 1040ez help Do not deduct federal income tax. 1040ez help Employment taxes. 1040ez help   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. 1040ez help Employment taxes are discussed briefly in chapter 1. 1040ez help You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. 1040ez help Deduct these payments as taxes. 1040ez help Self-employment tax. 1040ez help   You can deduct one-half of your self-employment tax on line 27 of Form 1040. 1040ez help Self-employment tax is discussed in chapters 1 and 10. 1040ez help Personal property tax. 1040ez help   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. 1040ez help   You can also deduct registration fees for the right to use property within a state or local area. 1040ez help Example. 1040ez help May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. 1040ez help They had to pay $25 for their annual state license tags and $20 for their city registration sticker. 1040ez help They also paid $235 in city personal property tax on the car, for a total of $280. 1040ez help They are claiming their actual car expenses. 1040ez help Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. 1040ez help Real estate taxes. 1040ez help   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. 1040ez help Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. 1040ez help The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. 1040ez help   For more information about real estate taxes, see chapter 5 in Publication 535. 1040ez help That chapter explains special rules for deducting the following items. 1040ez help Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. 1040ez help Real estate taxes when you buy or sell property during the year. 1040ez help Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. 1040ez help Sales tax. 1040ez help   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. 1040ez help If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. 1040ez help If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. 1040ez help If the property is depreciable, add the sales tax to the basis for depreciation. 1040ez help For information on the basis of property, see Publication 551, Basis of Assets. 1040ez help    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. 1040ez help Do not include these taxes in gross receipts or sales. 1040ez help Excise taxes. 1040ez help   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. 1040ez help Excise taxes are discussed briefly in chapter 1. 1040ez help Fuel taxes. 1040ez help   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. 1040ez help Do not deduct these taxes as a separate item. 1040ez help   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. 1040ez help For more information, see Publication 510, Excise Taxes. 1040ez help Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. 1040ez help Table 8-1. 1040ez help When Are Entertainment Expenses Deductible? (Note. 1040ez help The following is a summary of the rules for deducting entertainment expenses. 1040ez help For more details about these rules, see Publication 463. 1040ez help ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. 1040ez help Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 1040ez help An ordinary expense is one that is common and accepted in your field of business, trade, or profession. 1040ez help A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. 1040ez help Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. 1040ez help   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. 1040ez help Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 1040ez help You cannot deduct expenses that are lavish or extravagant under the circumstances. 1040ez help You generally can deduct only 50% of your unreimbursed entertainment expenses. 1040ez help Travel expenses. 1040ez help   These are the ordinary and necessary expenses of traveling away from home for your business. 1040ez help You are traveling away from home if both the following conditions are met. 1040ez help 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. 1040ez help You need to get sleep or rest to meet the demands of your work while away from home. 1040ez help Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 1040ez help It includes the entire city or general area in which your business is located. 1040ez help See Publication 463 for more information. 1040ez help   The following is a brief discussion of the expenses you can deduct. 1040ez help Transportation. 1040ez help   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. 1040ez help Taxi, commuter bus, and limousine. 1040ez help   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. 1040ez help Baggage and shipping. 1040ez help   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. 1040ez help Car or truck. 1040ez help   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. 1040ez help You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. 1040ez help If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 1040ez help Meals and lodging. 1040ez help   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 1040ez help In most cases, you can deduct only 50% of your meal expenses. 1040ez help Cleaning. 1040ez help   You can deduct the costs of dry cleaning and laundry while on your business trip. 1040ez help Telephone. 1040ez help   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. 1040ez help Tips. 1040ez help   You can deduct the tips you pay for any expense in this list. 1040ez help More information. 1040ez help   For more information about travel expenses, see Publication 463. 1040ez help Entertainment expenses. 1040ez help   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. 1040ez help In most cases, you can deduct only 50% of these expenses. 1040ez help   The following are examples of entertainment expenses. 1040ez help Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. 1040ez help Providing meals, a hotel suite, or a car to business customers or their families. 1040ez help To be deductible, the expenses must meet the rules listed in Table 8-1. 1040ez help For details about these rules, see Publication 463. 1040ez help Reimbursing your employees for expenses. 1040ez help   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. 1040ez help The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 1040ez help For details, see chapter 11 in Publication 535. 1040ez help That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 1040ez help Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. 1040ez help Even then, your deduction may be limited. 1040ez help To qualify to claim expenses for business use of your home, you must meet the following tests. 1040ez help Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. 1040ez help Exclusive use. 1040ez help   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. 1040ez help The area used for business can be a room or other separately identifiable space. 1040ez help The space does not need to be marked off by a permanent partition. 1040ez help   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. 1040ez help Example. 1040ez help You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. 1040ez help Your family also uses the den for recreation. 1040ez help The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. 1040ez help Exceptions to exclusive use. 1040ez help   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. 1040ez help For the storage of inventory or product samples. 1040ez help As a daycare facility. 1040ez help For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). 1040ez help Regular use. 1040ez help   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. 1040ez help You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. 1040ez help Principal place of business. 1040ez help   You can have more than one business location, including your home, for a single trade or business. 1040ez help To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. 1040ez help To determine your principal place of business, you must consider all the facts and circumstances. 1040ez help   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. 1040ez help You use it exclusively and regularly for administrative or management activities of your business. 1040ez help You have no other fixed location where you conduct substantial administrative or management activities of your business. 1040ez help   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. 1040ez help The relative importance of the activities performed at each location. 1040ez help If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. 1040ez help   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. 1040ez help However, for other ways to qualify to deduct home office expenses, see Publication 587. 1040ez help Deduction limit. 1040ez help   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. 1040ez help If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. 1040ez help   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. 1040ez help The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). 1040ez help The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. 1040ez help Do not include in (2) above your deduction for one-half of your self-employment tax. 1040ez help   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. 1040ez help New simplified method. 1040ez help    The IRS now provides a simplified method to determine your expenses for business use of your home. 1040ez help The simplified method is an alternative to calculating and substantiating actual expenses. 1040ez help In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. 1040ez help The area you use to figure your deduction is limited to 300 square feet. 1040ez help For more information, see the Instructions for Schedule C. 1040ez help More information. 1040ez help   For more information on deducting expenses for the business use of your home, see Publication 587. 1040ez help Other Expenses You Can Deduct You may also be able to deduct the following expenses. 1040ez help See Publication 535 to find out whether you can deduct them. 1040ez help Advertising. 1040ez help Bank fees. 1040ez help Donations to business organizations. 1040ez help Education expenses. 1040ez help Energy efficient commercial buildings deduction expenses. 1040ez help Impairment-related expenses. 1040ez help Interview expense allowances. 1040ez help Licenses and regulatory fees. 1040ez help Moving machinery. 1040ez help Outplacement services. 1040ez help Penalties and fines you pay for late performance or nonperformance of a contract. 1040ez help Repairs that keep your property in a normal efficient operating condition. 1040ez help Repayments of income. 1040ez help Subscriptions to trade or professional publications. 1040ez help Supplies and materials. 1040ez help Utilities. 1040ez help Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. 1040ez help For more information, see Publication 535. 1040ez help Bribes and kickbacks. 1040ez help Charitable contributions. 1040ez help Demolition expenses or losses. 1040ez help Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. 1040ez help Lobbying expenses. 1040ez help Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. 1040ez help Personal, living, and family expenses. 1040ez help Political contributions. 1040ez help Repairs that add to the value of your property or significantly increase its life. 1040ez help Prev  Up  Next   Home   More Online Publications