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Did Not File 2012 Taxes

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Did Not File 2012 Taxes

Did not file 2012 taxes 1. Did not file 2012 taxes   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Did not file 2012 taxes At-risk limits. Did not file 2012 taxes Passive activities. Did not file 2012 taxes Net operating loss. Did not file 2012 taxes When Can I Deduct an Expense?Economic performance. Did not file 2012 taxes Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Did not file 2012 taxes  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Did not file 2012 taxes See Optional safe harbor method under Business use of your home , later. Did not file 2012 taxes Introduction This chapter covers the general rules for deducting business expenses. Did not file 2012 taxes Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Did not file 2012 taxes Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Did not file 2012 taxes What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Did not file 2012 taxes An ordinary expense is one that is common and accepted in your industry. Did not file 2012 taxes A necessary expense is one that is helpful and appropriate for your trade or business. Did not file 2012 taxes An expense does not have to be indispensable to be considered necessary. Did not file 2012 taxes Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Did not file 2012 taxes In some cases you may not be allowed to deduct the expense at all. Did not file 2012 taxes Therefore, it is important to distinguish usual business expenses from expenses that include the following. Did not file 2012 taxes The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Did not file 2012 taxes Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Did not file 2012 taxes Some of your business expenses may be included in figuring cost of goods sold. Did not file 2012 taxes Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Did not file 2012 taxes If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Did not file 2012 taxes The following are types of expenses that go into figuring cost of goods sold. Did not file 2012 taxes The cost of products or raw materials, including freight. Did not file 2012 taxes Storage. Did not file 2012 taxes Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Did not file 2012 taxes Factory overhead. Did not file 2012 taxes Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Did not file 2012 taxes Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Did not file 2012 taxes This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Did not file 2012 taxes For more information, see the following sources. Did not file 2012 taxes Cost of goods sold—chapter 6 of Publication 334. Did not file 2012 taxes Inventories—Publication 538. Did not file 2012 taxes Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Did not file 2012 taxes Capital Expenses You must capitalize, rather than deduct, some costs. Did not file 2012 taxes These costs are a part of your investment in your business and are called “capital expenses. Did not file 2012 taxes ” Capital expenses are considered assets in your business. Did not file 2012 taxes In general, you capitalize three types of costs. Did not file 2012 taxes Business start-up costs (See Tip below). Did not file 2012 taxes Business assets. Did not file 2012 taxes Improvements. Did not file 2012 taxes You can elect to deduct or amortize certain business start-up costs. Did not file 2012 taxes See chapters 7 and 8. Did not file 2012 taxes Cost recovery. Did not file 2012 taxes   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Did not file 2012 taxes These recovery methods allow you to deduct part of your cost each year. Did not file 2012 taxes In this way, you are able to recover your capital expense. Did not file 2012 taxes See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Did not file 2012 taxes A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Did not file 2012 taxes A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Did not file 2012 taxes See Publication 946 for details. Did not file 2012 taxes Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Did not file 2012 taxes These costs may include expenses for advertising, travel, or wages for training employees. Did not file 2012 taxes If you go into business. Did not file 2012 taxes   When you go into business, treat all costs you had to get your business started as capital expenses. Did not file 2012 taxes   Usually you recover costs for a particular asset through depreciation. Did not file 2012 taxes Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Did not file 2012 taxes However, you can choose to amortize certain costs for setting up your business. Did not file 2012 taxes See Starting a Business in chapter 8 for more information on business start-up costs. Did not file 2012 taxes If your attempt to go into business is unsuccessful. Did not file 2012 taxes   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Did not file 2012 taxes The costs you had before making a decision to acquire or begin a specific business. Did not file 2012 taxes These costs are personal and nondeductible. Did not file 2012 taxes They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Did not file 2012 taxes The costs you had in your attempt to acquire or begin a specific business. Did not file 2012 taxes These costs are capital expenses and you can deduct them as a capital loss. Did not file 2012 taxes   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Did not file 2012 taxes   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Did not file 2012 taxes You cannot take a deduction for these costs. Did not file 2012 taxes You will recover the costs of these assets when you dispose of them. Did not file 2012 taxes Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Did not file 2012 taxes You must fully capitalize the cost of these assets, including freight and installation charges. Did not file 2012 taxes Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Did not file 2012 taxes See Regulations section 1. Did not file 2012 taxes 263A-2 for information on these rules. Did not file 2012 taxes Improvements Improvements are generally major expenditures. Did not file 2012 taxes Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Did not file 2012 taxes The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Did not file 2012 taxes Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Did not file 2012 taxes Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Did not file 2012 taxes However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Did not file 2012 taxes Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Did not file 2012 taxes Restoration plan. Did not file 2012 taxes   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Did not file 2012 taxes This applies even if some of the work would by itself be classified as repairs. Did not file 2012 taxes Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Did not file 2012 taxes Motor vehicles. Did not file 2012 taxes   You usually capitalize the cost of a motor vehicle you use in your business. Did not file 2012 taxes You can recover its cost through annual deductions for depreciation. Did not file 2012 taxes   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Did not file 2012 taxes See Publication 463. Did not file 2012 taxes   Generally, repairs you make to your business vehicle are currently deductible. Did not file 2012 taxes However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Did not file 2012 taxes Roads and driveways. Did not file 2012 taxes    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Did not file 2012 taxes The cost of maintaining a private road on your business property is a deductible expense. Did not file 2012 taxes Tools. Did not file 2012 taxes   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Did not file 2012 taxes Machinery parts. Did not file 2012 taxes   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Did not file 2012 taxes Heating equipment. Did not file 2012 taxes   The cost of changing from one heating system to another is a capital expense. Did not file 2012 taxes Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Did not file 2012 taxes However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Did not file 2012 taxes You can deduct the business part. Did not file 2012 taxes For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Did not file 2012 taxes The remaining 30% is personal interest and generally is not deductible. Did not file 2012 taxes See chapter 4 for information on deducting interest and the allocation rules. Did not file 2012 taxes Business use of your home. Did not file 2012 taxes   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Did not file 2012 taxes These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Did not file 2012 taxes   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Did not file 2012 taxes The business part of your home must be used exclusively and regularly for your trade or business. Did not file 2012 taxes The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Did not file 2012 taxes   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Did not file 2012 taxes   Your home office qualifies as your principal place of business if you meet the following requirements. Did not file 2012 taxes You use the office exclusively and regularly for administrative or management activities of your trade or business. Did not file 2012 taxes You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Did not file 2012 taxes   If you have more than one business location, determine your principal place of business based on the following factors. Did not file 2012 taxes The relative importance of the activities performed at each location. Did not file 2012 taxes If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Did not file 2012 taxes Optional safe harbor method. Did not file 2012 taxes   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Did not file 2012 taxes This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Did not file 2012 taxes   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Did not file 2012 taxes Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Did not file 2012 taxes You are not required to allocate these deductions between personal and business use, as is required under the regular method. Did not file 2012 taxes If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Did not file 2012 taxes   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Did not file 2012 taxes All of the requirements discussed earlier under Business use of your home still apply. Did not file 2012 taxes   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Did not file 2012 taxes    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Did not file 2012 taxes Business use of your car. Did not file 2012 taxes   If you use your car exclusively in your business, you can deduct car expenses. Did not file 2012 taxes If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Did not file 2012 taxes Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Did not file 2012 taxes   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Did not file 2012 taxes Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Did not file 2012 taxes Beginning in 2013, the standard mileage rate is 56. Did not file 2012 taxes 5 cents per mile. Did not file 2012 taxes   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Did not file 2012 taxes   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Did not file 2012 taxes How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Did not file 2012 taxes Recovery of amount deducted (tax benefit rule). Did not file 2012 taxes   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Did not file 2012 taxes If you have a recovery in a later year, include the recovered amount in income in that year. Did not file 2012 taxes However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Did not file 2012 taxes   For more information on recoveries and the tax benefit rule, see Publication 525. Did not file 2012 taxes Payments in kind. Did not file 2012 taxes   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Did not file 2012 taxes You cannot deduct the cost of your own labor. Did not file 2012 taxes   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Did not file 2012 taxes If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Did not file 2012 taxes Limits on losses. Did not file 2012 taxes   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Did not file 2012 taxes There may be limits on how much of the loss you can deduct. Did not file 2012 taxes Not-for-profit limits. Did not file 2012 taxes   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Did not file 2012 taxes See Not-for-Profit Activities , later. Did not file 2012 taxes At-risk limits. Did not file 2012 taxes   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Did not file 2012 taxes You are at risk in any activity for the following. Did not file 2012 taxes The money and adjusted basis of property you contribute to the activity. Did not file 2012 taxes Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Did not file 2012 taxes For more information, see Publication 925. Did not file 2012 taxes Passive activities. Did not file 2012 taxes   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Did not file 2012 taxes In general, deductions for losses from passive activities only offset income from passive activities. Did not file 2012 taxes You cannot use any excess deductions to offset other income. Did not file 2012 taxes In addition, passive activity credits can only offset the tax on net passive income. Did not file 2012 taxes Any excess loss or credits are carried over to later years. Did not file 2012 taxes Suspended passive losses are fully deductible in the year you completely dispose of the activity. Did not file 2012 taxes For more information, see Publication 925. Did not file 2012 taxes Net operating loss. Did not file 2012 taxes   If your deductions are more than your income for the year, you may have a “net operating loss. Did not file 2012 taxes ” You can use a net operating loss to lower your taxes in other years. Did not file 2012 taxes See Publication 536 for more information. Did not file 2012 taxes   See Publication 542 for information about net operating losses of corporations. Did not file 2012 taxes When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Did not file 2012 taxes An accounting method is a set of rules used to determine when and how income and expenses are reported. Did not file 2012 taxes The two basic methods are the cash method and the accrual method. Did not file 2012 taxes Whichever method you choose must clearly reflect income. Did not file 2012 taxes For more information on accounting methods, see Publication 538. Did not file 2012 taxes Cash method. Did not file 2012 taxes   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Did not file 2012 taxes Accrual method. Did not file 2012 taxes   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Did not file 2012 taxes The all-events test has been met. Did not file 2012 taxes The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Did not file 2012 taxes Economic performance has occurred. Did not file 2012 taxes Economic performance. Did not file 2012 taxes   You generally cannot deduct or capitalize a business expense until economic performance occurs. Did not file 2012 taxes If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Did not file 2012 taxes If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Did not file 2012 taxes Example. Did not file 2012 taxes Your tax year is the calendar year. Did not file 2012 taxes In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Did not file 2012 taxes You paid it by check in January 2014. Did not file 2012 taxes If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Did not file 2012 taxes If you use the cash method of accounting, deduct the expense on your 2014 return. Did not file 2012 taxes Prepayment. Did not file 2012 taxes   You generally cannot deduct expenses in advance, even if you pay them in advance. Did not file 2012 taxes This rule applies to both the cash and accrual methods. Did not file 2012 taxes It applies to prepaid interest, prepaid insurance premiums, and any other 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. Did not file 2012 taxes Example. Did not file 2012 taxes In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Did not file 2012 taxes Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Did not file 2012 taxes You can deduct the rent for 2014 and 2015 on your tax returns for those years. Did not file 2012 taxes Contested liability. Did not file 2012 taxes   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Did not file 2012 taxes Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Did not file 2012 taxes S. Did not file 2012 taxes possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Did not file 2012 taxes However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Did not file 2012 taxes See Regulations section 1. Did not file 2012 taxes 461-2. Did not file 2012 taxes Related person. Did not file 2012 taxes   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Did not file 2012 taxes However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Did not file 2012 taxes Your deduction is allowed when the amount is includible in income by the related cash method payee. Did not file 2012 taxes See Related Persons in Publication 538. Did not file 2012 taxes Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Did not file 2012 taxes Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Did not file 2012 taxes The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Did not file 2012 taxes It does not apply to corporations other than S corporations. Did not file 2012 taxes In determining whether you are carrying on an activity for profit, several factors are taken into account. Did not file 2012 taxes No one factor alone is decisive. Did not file 2012 taxes Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Did not file 2012 taxes Presumption of profit. Did not file 2012 taxes   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Did not file 2012 taxes Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Did not file 2012 taxes The activity must be substantially the same for each year within this period. Did not file 2012 taxes You have a profit when the gross income from an activity exceeds the deductions. Did not file 2012 taxes   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Did not file 2012 taxes   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Did not file 2012 taxes This means the limits discussed here will not apply. Did not file 2012 taxes You can take all your business deductions from the activity, even for the years that you have a loss. Did not file 2012 taxes You can rely on this presumption unless the IRS later shows it to be invalid. Did not file 2012 taxes Using the presumption later. Did not file 2012 taxes   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Did not file 2012 taxes   You can elect to do this by filing Form 5213. Did not file 2012 taxes Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Did not file 2012 taxes   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Did not file 2012 taxes Accordingly, it will not restrict your deductions. Did not file 2012 taxes Rather, you will gain time to earn a profit in the required number of years. Did not file 2012 taxes If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Did not file 2012 taxes If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Did not file 2012 taxes   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Did not file 2012 taxes The period is extended only for deductions of the activity and any related deductions that might be affected. Did not file 2012 taxes    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Did not file 2012 taxes Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Did not file 2012 taxes Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Did not file 2012 taxes You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Did not file 2012 taxes However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Did not file 2012 taxes Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Did not file 2012 taxes If you are an individual, these deductions may be taken only if you itemize. Did not file 2012 taxes These deductions may be taken on Schedule A (Form 1040). Did not file 2012 taxes Category 1. Did not file 2012 taxes   Deductions you can take for personal as well as for business activities are allowed in full. Did not file 2012 taxes For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Did not file 2012 taxes Deduct them on the appropriate lines of Schedule A (Form 1040). Did not file 2012 taxes For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Did not file 2012 taxes The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Did not file 2012 taxes The reduction amount returns to $100 for tax years beginning after December 31, 2009. Did not file 2012 taxes See Publication 547 for more information on casualty losses. Did not file 2012 taxes For the limits that apply to home mortgage interest, see Publication 936. Did not file 2012 taxes Category 2. Did not file 2012 taxes   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Did not file 2012 taxes Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Did not file 2012 taxes Category 3. Did not file 2012 taxes   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Did not file 2012 taxes Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Did not file 2012 taxes Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Did not file 2012 taxes    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Did not file 2012 taxes They are subject to the 2%-of-adjusted-gross-income limit. Did not file 2012 taxes See Publication 529 for information on this limit. Did not file 2012 taxes Example. Did not file 2012 taxes Adriana is engaged in a not-for-profit activity. Did not file 2012 taxes The income and expenses of the activity are as follows. Did not file 2012 taxes Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Did not file 2012 taxes The limit is reached in category (3), as follows. Did not file 2012 taxes Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Did not file 2012 taxes $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Did not file 2012 taxes Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Did not file 2012 taxes The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Did not file 2012 taxes Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Did not file 2012 taxes Partnerships and S corporations. Did not file 2012 taxes   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Did not file 2012 taxes They are reflected in the individual shareholder's or partner's distributive shares. Did not file 2012 taxes More than one activity. Did not file 2012 taxes   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Did not file 2012 taxes The following are the most significant facts and circumstances in making this determination. Did not file 2012 taxes The degree of organizational and economic interrelationship of various undertakings. Did not file 2012 taxes The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Did not file 2012 taxes The similarity of the undertakings. Did not file 2012 taxes   The IRS will generally accept your characterization if it is supported by facts and circumstances. Did not file 2012 taxes    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Did not file 2012 taxes Figure separately whether each is a not-for-profit activity. Did not file 2012 taxes Then figure the limit on deductions and losses separately for each activity that is not for profit. 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1099-K Reporting Requirements for Payment Settlement Entities

Beginning in January, 2012, payment settlement entities (PSEs) are required by the Housing Assistance Tax Act of 2008 to report on Form 1099-K the following transactions:

  • All payments made in settlement of payment card transactions (e.g., credit card);
  • Payments in settlement of third party network transactions IF:
    -Gross payments to a participating payee exceed $20,000; AND
    -There are more than 200 transactions with the participating payee.

Filing Deadlines & Procedures

Your 1099-Ks are due to merchants by January 31, 2014. Electronically filed 1099-Ks are due to the IRS April 1, 2014 (normally March 31), while paper 1099-Ks are due February 28, 2014.

File your 1099-K electronically through the FIRE (Filing Information Returns Electronically) option. For information, review Publication 1220 (PDF). If you are considering filing on paper, review General Instructions for Certain Information Returns.

Verification Processes

We verify that tax returns are correct and complete using the following processes:

More Information

You can find more about the 1099-K and other information returns at our Third Party Reporting Information Center.

You may also want to see Frequently Asked Question about Backup Withholding

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Page Last Reviewed or Updated: 20-Mar-2014

The Did Not File 2012 Taxes

Did not file 2012 taxes Tax Changes for Businesses Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Electronic Form 1099 Tax Incentives for New York Liberty Zone Other 2001 Changes 2002 ChangesNonaccrual-Experience Method Issuance of Qualified Zone Academy Bonds Depletion Work Opportunity Credit Expanded in New York Liberty Zone Credit For Pension Plan Startup Costs Welfare-to-Work Credit Extended Work Opportunity Credit Extended Electric and Clean-Fuel Vehicles Renewable Electricity Production Credit Later ChangesSpecial Depreciation Allowance Extension of Placed in Service Date Special Liberty Zone Depreciation Allowance for New and Used Property Depreciation of Property Used on Indian Reservations Indian Employment Credit Extended 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Did not file 2012 taxes However, you can still choose to use the previous carryback period. Did not file 2012 taxes You also can choose not to carry back an NOL and only carry it forward. Did not file 2012 taxes Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Did not file 2012 taxes Corporations can file Form 1139, Corporation Application for Tentative Refund. Did not file 2012 taxes The instructions for these forms will be revised to reflect the new law. Did not file 2012 taxes Electronic Form 1099 For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations, to receive it that way. Did not file 2012 taxes Tax Incentives for New York Liberty Zone New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. Did not file 2012 taxes These benefits apply to the newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan. Did not file 2012 taxes Tax benefits for the New York Liberty Zone include the following. Did not file 2012 taxes A special depreciation allowance equal to 30% of the adjusted basis of qualified Liberty Zone property. Did not file 2012 taxes It is allowed for the year the property is placed in service. Did not file 2012 taxes No alternative minimum tax depreciation adjustment for qualified Liberty Zone property. Did not file 2012 taxes Classification of Liberty Zone leasehold improvement property as 5-year property. Did not file 2012 taxes Authorization of the issuance of tax-exempt New York Liberty bonds to finance the acquisition, construction, reconstruction, and renovation of nonresidential real property, residential rental property, and public utility property in the Liberty Zone. Did not file 2012 taxes An increased section 179 deduction for certain Liberty Zone property. Did not file 2012 taxes Extension of the replacement period from 2 years to 5 years for certain property involuntarily converted as a result of the terrorist attacks on September 11, 2001, but only if substantially all of the use of the replacement property is in New York City. Did not file 2012 taxes For more information about involuntary conversions, see Postponement of Gain in Publication 547, Casualties, Disasters, and Thefts. Did not file 2012 taxes In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. Did not file 2012 taxes For more information, see Work Opportunity Credit Expanded in New York Liberty Zone under 2002 Changes, later. Did not file 2012 taxes For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction, see New York Liberty Zone Benefits, in chapter 5. Did not file 2012 taxes In addition, the tax benefits for the Liberty Zone will be covered in a new edition of Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002. Did not file 2012 taxes Other 2001 Changes Other changes are discussed in the following chapters. Did not file 2012 taxes Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Nonaccrual-Experience Method Under current law, if you perform services and use an accrual method of accounting, you do not accrue income which, based on experience, you expect to be uncollectible. Did not file 2012 taxes Beginning in 2002, this rule only applies if you perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting, or your average annual gross receipts for the 3 prior tax years does not exceed $5,000,000. Did not file 2012 taxes As under current law, the nonaccrual-experience method will not apply to amounts on which you charge interest or a late payment penalty. Did not file 2012 taxes For more information, see Nonaccrual-Experience Method in chapter 11 of Publication 535, Business Expenses. Did not file 2012 taxes Issuance of Qualified Zone Academy Bonds State and local governments issue qualified zone academy bonds to raise funds for the use of qualified zone academies. Did not file 2012 taxes The amount of bonds that may be issued was limited to $400 million each year for 1998, 1999, 2000, and 2001. Did not file 2012 taxes This provision has been extended to provide for an additional $400 million of bonds to be issued each year for 2002 and 2003. Did not file 2012 taxes For more information about qualified zone academy bonds, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Did not file 2012 taxes Depletion The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire for tax years beginning after 2001 has been extended to tax years beginning before 2004. Did not file 2012 taxes For more information on marginal production, see section 613A(c) of the Internal Revenue Code. Did not file 2012 taxes Work Opportunity Credit Expanded in New York Liberty Zone The work opportunity credit is expanded to include a new targeted group consisting generally of employees who perform substantially all their services: In the New York Liberty Zone (defined earlier under Tax Incentives for New York Liberty Zone, under 2001 Changes), or Elsewhere in New York City for a business that relocated from the Liberty Zone due to the destruction or damage of its place of business by the September 11, 2001, terrorist attack. Did not file 2012 taxes The credit is available to employers for wages paid to new employees and existing employees for work performed during 2002 or 2003. Did not file 2012 taxes Certain limits apply. Did not file 2012 taxes For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Did not file 2012 taxes Credit For Pension Plan Startup Costs The credit for pension plan startup costs is now allowed for plans that become effective after December 31, 2001. Did not file 2012 taxes Previously, the credit was only allowed for plans established after December 31, 2001. Did not file 2012 taxes For more information on the credit, see Important Changes for 2002 in Publication 560, Retirement Plans for Small Business. Did not file 2012 taxes Welfare-to-Work Credit Extended The welfare-to-work credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Did not file 2012 taxes For more information on the welfare-to-work credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Did not file 2012 taxes Work Opportunity Credit Extended The work opportunity credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Did not file 2012 taxes For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Did not file 2012 taxes Electric and Clean-Fuel Vehicles The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and both were scheduled to be phased out completely by 2005. Did not file 2012 taxes The full deduction and credit are now allowed for qualified property placed in service in 2002 and 2003. Did not file 2012 taxes The phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed in service after 2006. Did not file 2012 taxes For more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses. Did not file 2012 taxes Renewable Electricity Production Credit The renewable electricity production credit is extended to include electricity produced by facilities placed in service after 2001 and before 2004. Did not file 2012 taxes Later Changes Special Depreciation Allowance You can claim the special depreciation allowance (an additional 30% depreciation deduction) for new property that you acquire before September 11, 2004, and place in service for your business generally before January 1, 2005, if you meet the other requirements for qualified property covered in chapter 5. Did not file 2012 taxes Accordingly, you will generally no longer be able to claim the special depreciation allowance for the qualified property if you acquire it after September 10, 2004, or place it in service for your business after December 31, 2004. Did not file 2012 taxes However, you will be able to claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for most qualified property if you place it in service in the Liberty Zone after December 31, 2004, and generally before January 1, 2007, provided you meet the other requirements for qualified Liberty Zone property covered in chapter 5. Did not file 2012 taxes Extension of Placed in Service Date To qualify for the special depreciation allowance, your property must meet certain tests, including the placed in service date test, as well as the other requirements covered in chapter 5 of this publication. Did not file 2012 taxes To meet the placed in service date test, your property must generally be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Did not file 2012 taxes However, certain property placed in service before January 1, 2006, may meet this test. Did not file 2012 taxes Transportation property and property with a recovery period of 10 years or longer meet the test if one of the following applies. Did not file 2012 taxes The property has an estimated production period of more than 2 years. Did not file 2012 taxes The property has an estimated production period of more than 1 year and it costs more than $1 million. Did not file 2012 taxes Transportation property is any tangible personal property used in the trade or business of transporting persons or property. Did not file 2012 taxes For property that qualifies for the special depreciation allowance solely because of the one-year extension of the placed in service date, only the part of the basis attributable to manufacture, construction, or production before September 11, 2004, is eligible for the special depreciation allowance. Did not file 2012 taxes Special Liberty Zone Depreciation Allowance for New and Used Property You can claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for used property that you acquire after September 10, 2001, if the property meets the requirements listed under Qualified Liberty Zone Property in chapter 5 of this publication. Did not file 2012 taxes You will be able to claim the allowance for both new and used property that you acquire after September 10, 2004, provided the property meets the other requirements for qualified Liberty Zone property. Did not file 2012 taxes Depreciation of Property Used on Indian Reservations The special depreciation rules that apply to qualified property used on an Indian reservation were scheduled to expire for property placed in service after 2003. Did not file 2012 taxes These special rules have been extended to include property placed in service in 2004. Did not file 2012 taxes For more information about these rules, see Publication 946, How To Depreciate Property. Did not file 2012 taxes Indian Employment Credit Extended The Indian employment credit that was scheduled to expire for tax years beginning after 2003 has been extended to include a tax year beginning in 2004. Did not file 2012 taxes For more information about this credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Did not file 2012 taxes Prev  Up  Next   Home   More Online Publications