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1040ez Instruction Book

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1040ez Instruction Book

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

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Arizona Office of the Attorney General- Tucson

Website: Arizona Office of the Attorney General- Tucson

Address: Arizona Office of the Attorney General- Tucson
Consumer Information and Complaints
400 W. Congress St.
South Bldg., Suite 315
Tucson, AZ 85701-1367

Phone Number: 520-628-6504

Toll-free: 1-800-352-8431 (AZ, except in Maricopa and Pima Counties)

Arizona Office of the Attorney General-Phoenix

Website: Arizona Office of the Attorney General-Phoenix

Address: Arizona Office of the Attorney General-Phoenix
Consumer Information and Complaints
1275 W. Washington St.
Phoenix, AZ 85007

Phone Number: 602-542-5763

Toll-free: 1-800-352-8431 (AZ, except Phoenix)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
2910 N. 44th St., Suite 310
Phoenix, AZ 85018

Phone Number: 602-771-2800

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Affairs Division
2910 N. 44th St., Suite 210
Phoenix, AZ 85018-7269

Phone Number: 602-364-2499 602-364-2977 (in Spanish)

Toll-free: 1-800-325-2548 (AZ)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Arizona Corporation Commission

Website: Arizona Corporation Commission

Address: Arizona Corporation Commission
Securities Division
1300 W. Washington St., 3rd Floor
Phoenix, AZ 85007

Phone Number: 602-542-4242

Toll-free: 1-866-837-4399 (AZ)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Corporation Commission

Website: Corporation Commission

Address: Corporation Commission
Utilities Division
Consumer Services

1200 W. Washington St.
Phoenix, AZ 85007-2996

Phone Number: 602-542-4251

Toll-free: 1-800-222-7000 (AZ)

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The 1040ez Instruction Book

1040ez instruction book 5. 1040ez instruction book   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. 1040ez instruction book Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. 1040ez instruction book When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. 1040ez instruction book Otherwise, these are capital expenses that must be added to the basis of the land. 1040ez instruction book (See chapter 6 for information on determining basis. 1040ez instruction book ) Conservation expenses for land in a foreign country do not qualify for this special treatment. 1040ez instruction book The deduction for conservation expenses cannot be more than 25% of your gross income from farming. 1040ez instruction book See 25% Limit on Deduction , later. 1040ez instruction book Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. 1040ez instruction book These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. 1040ez instruction book You must include in income most government payments for approved conservation practices. 1040ez instruction book However, you can exclude some payments you receive under certain cost-sharing conservation programs. 1040ez instruction book For more information, see Agricultural Program Payments in chapter 3. 1040ez instruction book To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. 1040ez instruction book Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. 1040ez instruction book You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. 1040ez instruction book You are not farming if you are engaged only in forestry or the growing of timber. 1040ez instruction book Farm defined. 1040ez instruction book   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. 1040ez instruction book It also includes plantations, ranches, ranges, and orchards. 1040ez instruction book A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. 1040ez instruction book It does not include an area where they are merely caught or harvested. 1040ez instruction book A plant nursery is a farm for purposes of deducting soil and water conservation expenses. 1040ez instruction book Farm rental. 1040ez instruction book   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. 1040ez instruction book If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. 1040ez instruction book   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. 1040ez instruction book Example. 1040ez instruction book You own a farm in Iowa and live in California. 1040ez instruction book You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. 1040ez instruction book You cannot deduct your soil conservation expenses for this farm. 1040ez instruction book You must capitalize the expenses and add them to the basis of the land. 1040ez instruction book     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. 1040ez instruction book Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. 1040ez instruction book If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. 1040ez instruction book Keep a copy of the plan with your books and records to support your deductions. 1040ez instruction book Conservation plan. 1040ez instruction book   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. 1040ez instruction book There are three types of approved plans. 1040ez instruction book NRCS individual site plans. 1040ez instruction book These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. 1040ez instruction book NRCS county plans. 1040ez instruction book These plans include a listing of farm conservation practices approved for the county where the farmland is located. 1040ez instruction book You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. 1040ez instruction book Comparable state agency plans. 1040ez instruction book These plans are approved by state agencies and can be approved individual site plans or county plans. 1040ez instruction book   A list of NRCS conservation programs is available at www. 1040ez instruction book nrcs. 1040ez instruction book usda. 1040ez instruction book gov/programs. 1040ez instruction book Individual site plans can be obtained from NRCS offices and the comparable state agencies. 1040ez instruction book Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. 1040ez instruction book These expenses include, but are not limited to, the following. 1040ez instruction book The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. 1040ez instruction book The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. 1040ez instruction book The eradication of brush. 1040ez instruction book The planting of windbreaks. 1040ez instruction book You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. 1040ez instruction book These expenses are added to the basis of the land. 1040ez instruction book If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. 1040ez instruction book See chapter 3 for information about payments eligible for the cost-sharing exclusion. 1040ez instruction book New farm or farmland. 1040ez instruction book   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. 1040ez instruction book You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. 1040ez instruction book The new farming activity does not have to be the same as the old farming activity. 1040ez instruction book For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. 1040ez instruction book Land not used for farming. 1040ez instruction book   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. 1040ez instruction book For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. 1040ez instruction book You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. 1040ez instruction book Depreciable conservation assets. 1040ez instruction book   You generally cannot deduct your expenses for depreciable conservation assets. 1040ez instruction book However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. 1040ez instruction book See Assessment for Depreciable Property , later. 1040ez instruction book   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. 1040ez instruction book These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. 1040ez instruction book You recover your capital investment through annual allowances for depreciation. 1040ez instruction book   You can deduct soil and water conservation expenses for nondepreciable earthen items. 1040ez instruction book Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. 1040ez instruction book Water well. 1040ez instruction book   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. 1040ez instruction book It is a capital expense. 1040ez instruction book You recover your cost through depreciation. 1040ez instruction book You also must capitalize your cost for drilling a test hole. 1040ez instruction book If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. 1040ez instruction book You can recover the total cost through depreciation deductions. 1040ez instruction book   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. 1040ez instruction book Abandonment means that all economic benefits from the well are terminated. 1040ez instruction book For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. 1040ez instruction book Endangered species recovery expenses. 1040ez instruction book   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. 1040ez instruction book Otherwise, these are capital expenses that must be added to the basis of the land. 1040ez instruction book   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. 1040ez instruction book See Internal Revenue Code section 175 for more information. 1040ez instruction book Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. 1040ez instruction book You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. 1040ez instruction book Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. 1040ez instruction book This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. 1040ez instruction book The depreciable property must be used in the district's soil and water conservation activities. 1040ez instruction book However, the following limits apply to these assessments. 1040ez instruction book The total assessment limit. 1040ez instruction book The yearly assessment limit. 1040ez instruction book After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. 1040ez instruction book The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040ez instruction book See Table 5-1 for a brief summary of these limits. 1040ez instruction book Table 5-1. 1040ez instruction book Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. 1040ez instruction book Your deductible share of the cost to the district for the property. 1040ez instruction book Your gross income from farming. 1040ez instruction book No one taxpayer can deduct more than 10% of the total assessment. 1040ez instruction book Any amount over 10% is a capital expense and is added to the basis of your land. 1040ez instruction book If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040ez instruction book If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. 1040ez instruction book You can deduct the remainder in equal amounts over the next 9 tax years. 1040ez instruction book Limit for all conservation expenses, including assessments for depreciable property. 1040ez instruction book Amounts greater than 25% can be carried to the following year and added to that year's expenses. 1040ez instruction book The total is then subject to the 25% of gross income from farming limit in that year. 1040ez instruction book To ensure your deduction is within the deduction limits, keep records to show the following. 1040ez instruction book The total assessment against all members of the district for the depreciable property. 1040ez instruction book Your deductible share of the cost to the district for the depreciable property. 1040ez instruction book Your gross income from farming. 1040ez instruction book Total assessment limit. 1040ez instruction book   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. 1040ez instruction book This applies whether you pay the assessment in one payment or in installments. 1040ez instruction book If your assessment is more than 10% of the total amount assessed, both the following rules apply. 1040ez instruction book The amount over 10% is a capital expense and is added to the basis of your land. 1040ez instruction book If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040ez instruction book Yearly assessment limit. 1040ez instruction book   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. 1040ez instruction book If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. 1040ez instruction book If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. 1040ez instruction book You can deduct the remainder in equal amounts over the next 9 tax years. 1040ez instruction book Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040ez instruction book Example 1. 1040ez instruction book This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. 1040ez instruction book Of the assessment, $1,500 is for digging drainage ditches. 1040ez instruction book You can deduct this part as a soil or conservation expense as if you had paid it directly. 1040ez instruction book The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. 1040ez instruction book The total amount assessed by the district against all its members for the depreciable equipment is $7,000. 1040ez instruction book The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. 1040ez instruction book The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. 1040ez instruction book To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. 1040ez instruction book Add $500 to the result for a total of $570. 1040ez instruction book Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). 1040ez instruction book You can deduct the balance at the rate of $70 a year over the next 9 years. 1040ez instruction book You add $70 to the $1,500 portion of the assessment for drainage ditches. 1040ez instruction book You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040ez instruction book Example 2. 1040ez instruction book Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. 1040ez instruction book The total amount assessed by the district against all its members for depreciable equipment is $5,500. 1040ez instruction book The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. 1040ez instruction book The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). 1040ez instruction book Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. 1040ez instruction book You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. 1040ez instruction book Sale or other disposal of land during 9-year period. 1040ez instruction book   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. 1040ez instruction book Death of farmer during 9-year period. 1040ez instruction book   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. 1040ez instruction book 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. 1040ez instruction book Gross income from farming. 1040ez instruction book   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. 1040ez instruction book Gains from sales of draft, breeding, or dairy livestock are included. 1040ez instruction book Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. 1040ez instruction book Carryover of deduction. 1040ez instruction book   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. 1040ez instruction book However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. 1040ez instruction book Example. 1040ez instruction book In 2012, you have gross income of $32,000 from two farms. 1040ez instruction book During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. 1040ez instruction book However, your deduction is limited to 25% of $32,000, or $8,000. 1040ez instruction book The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. 1040ez instruction book The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. 1040ez instruction book Any expenses over the limit in that year are carried to 2014 and later years. 1040ez instruction book Net operating loss. 1040ez instruction book   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. 1040ez instruction book If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. 1040ez instruction book When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. 1040ez instruction book If you do not choose to deduct the expenses, you must capitalize them. 1040ez instruction book Change of method. 1040ez instruction book   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. 1040ez instruction book To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. 1040ez instruction book You or your authorized representative must sign the request. 1040ez instruction book   The request must include the following information. 1040ez instruction book Your name and address. 1040ez instruction book The first tax year the method or change of method is to apply. 1040ez instruction book Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. 1040ez instruction book If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. 1040ez instruction book The total expenses you paid or incurred in the first tax year the method or change of method is to apply. 1040ez instruction book A statement that you will account separately in your books for the expenses to which this method or change of method relates. 1040ez instruction book Send your request to the following  address. 1040ez instruction book  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. 1040ez instruction book Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). 1040ez instruction book However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. 1040ez instruction book Gain on sale of farmland. 1040ez instruction book   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. 1040ez instruction book If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. 1040ez instruction book See Section 1252 property under Other Gains in chapter 9. 1040ez instruction book Prev  Up  Next   Home   More Online Publications