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Ez 1040 Online

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Ez 1040 Online

Ez 1040 online 27. Ez 1040 online   Tax Benefits for Work-Related Education Table of Contents What's New Introduction Useful Items - You may want to see: Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Ez 1040 online Transportation Expenses Travel Expenses No Double Benefit Allowed Reimbursements Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping What's New Standard mileage rate. Ez 1040 online  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013, through December 31, 2013, is 56½ cents per mile. Ez 1040 online For more information, see Transportation Expenses under What Expenses Can Be Deducted. Ez 1040 online Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. Ez 1040 online To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040) if you are an employee, File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education . Ez 1040 online If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Ez 1040 online Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. Ez 1040 online See chapter 28. Ez 1040 online If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. Ez 1040 online Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits (see chapter 35). Ez 1040 online You may qualify for these other benefits even if you do not meet the requirements listed earlier. Ez 1040 online Also, keep in mind that your work-related education expenses may qualify you to claim more than one tax benefit. Ez 1040 online Generally, you may claim any number of benefits as long as you use different expenses to figure each one. Ez 1040 online When you figure your taxes, you may want to compare these tax benefits so you can choose the method(s) that give you the lowest tax liability. Ez 1040 online Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 970 Tax Benefits for Education Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Schedule A (Form 1040) Itemized Deductions Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. Ez 1040 online This is education that meets at least one of the following two tests. Ez 1040 online The education is required by your employer or the law to keep your present salary, status, or job. Ez 1040 online The required education must serve a bona fide business purpose of your employer. Ez 1040 online The education maintains or improves skills needed in your present work. Ez 1040 online However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. Ez 1040 online You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. Ez 1040 online Use Figure 27-A, later, as a quick check to see if your education qualifies. Ez 1040 online Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. Ez 1040 online This additional education is qualifying work-related education if all three of the following requirements are met. Ez 1040 online It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. Ez 1040 online When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. Ez 1040 online See Education To Maintain or Improve Skills , later. Ez 1040 online Example. Ez 1040 online You are a teacher who has satisfied the minimum requirements for teaching. Ez 1040 online Your employer requires you to take an additional college course each year to keep your teaching job. Ez 1040 online If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. Ez 1040 online Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. Ez 1040 online This could include refresher courses, courses on current developments, and academic or vocational courses. Ez 1040 online Example. Ez 1040 online You repair televisions, radios, and stereo systems for XYZ Store. Ez 1040 online To keep up with the latest changes, you take special courses in radio and stereo service. Ez 1040 online These courses maintain and improve skills required in your work. Ez 1040 online Maintaining skills vs. Ez 1040 online qualifying for new job. Ez 1040 online   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. Ez 1040 online Education during temporary absence. Ez 1040 online   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Ez 1040 online Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. Ez 1040 online Example. Ez 1040 online You quit your biology research job to become a full-time biology graduate student for one year. Ez 1040 online If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. Ez 1040 online Education during indefinite absence. Ez 1040 online   If you stop work for more than a year, your absence from your job is considered indefinite. Ez 1040 online Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. Ez 1040 online Therefore, it is not qualifying work-related education. Ez 1040 online Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Ez 1040 online The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. Ez 1040 online Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. Ez 1040 online This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. Ez 1040 online You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. Ez 1040 online Example 1. Ez 1040 online You are a full-time engineering student. Ez 1040 online Although you have not received your degree or certification, you work part-time as an engineer for a firm that will employ you as a full-time engineer after you finish college. Ez 1040 online Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. Ez 1040 online The education is not qualifying work-related education. Ez 1040 online Example 2. Ez 1040 online You are an accountant and you have met the minimum educational requirements of your employer. Ez 1040 online Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. Ez 1040 online These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. Ez 1040 online Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. Ez 1040 online The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. Ez 1040 online If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. Ez 1040 online The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. Ez 1040 online You generally will be considered a faculty member when one or more of the following occurs. Ez 1040 online You have tenure. Ez 1040 online Your years of service count toward obtaining tenure. Ez 1040 online You have a vote in faculty decisions. Ez 1040 online Your school makes contributions for you to a retirement plan other than social security or a similar program. Ez 1040 online Example 1. Ez 1040 online The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. Ez 1040 online In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. Ez 1040 online If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. Ez 1040 online However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. Ez 1040 online Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. Ez 1040 online If you have all the required education except the fifth year, you have met the minimum educational requirements. Ez 1040 online The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. Ez 1040 online Figure 27-A Does Your Work-Related Education Qualify? Please click here for the text description of the image. Ez 1040 online Figure 27-A. Ez 1040 online Does Your Work-Related Education Qualify?" Example 2. Ez 1040 online Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. Ez 1040 online The additional four education courses can be qualifying work-related education. Ez 1040 online Although you do not have all the required courses, you have already met the minimum educational requirements. Ez 1040 online Example 3. Ez 1040 online Assume the same facts as in Example 1 except that you are hired with only 3 years of college. Ez 1040 online The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. Ez 1040 online They are needed to meet the minimum educational requirements for employment as a teacher. Ez 1040 online Example 4. Ez 1040 online You have a bachelor's degree and you work as a temporary instructor at a university. Ez 1040 online At the same time, you take graduate courses toward an advanced degree. Ez 1040 online The rules of the university state that you can become a faculty member only if you get a graduate degree. Ez 1040 online Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. Ez 1040 online You have not met the minimum educational requirements to qualify you as a faculty member. Ez 1040 online The graduate courses are not qualifying work-related education. Ez 1040 online Certification in a new state. Ez 1040 online   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. Ez 1040 online This is true even if you must get additional education to be certified in another state. Ez 1040 online Any additional education you need is qualifying work-related education. Ez 1040 online You have already met the minimum requirements for teaching. Ez 1040 online Teaching in another state is not a new trade or business. Ez 1040 online Example. Ez 1040 online You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. Ez 1040 online You move to State B and are promptly hired as a teacher. Ez 1040 online You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. Ez 1040 online These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. Ez 1040 online Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. Ez 1040 online This is true even if you do not plan to enter that trade or business. Ez 1040 online If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. Ez 1040 online Example 1. Ez 1040 online You are an accountant. Ez 1040 online Your employer requires you to get a law degree at your own expense. Ez 1040 online You register at a law school for the regular curriculum that leads to a law degree. Ez 1040 online Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. Ez 1040 online Example 2. Ez 1040 online You are a general practitioner of medicine. Ez 1040 online You take a 2-week course to review developments in several specialized fields of medicine. Ez 1040 online The course does not qualify you for a new profession. Ez 1040 online It is qualifying work-related education because it maintains or improves skills required in your present profession. Ez 1040 online Example 3. Ez 1040 online While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. Ez 1040 online The program will lead to qualifying you to practice psychoanalysis. Ez 1040 online The psychoanalytic training does not qualify you for a new profession. Ez 1040 online It is qualifying work-related education because it maintains or improves skills required in your present profession. Ez 1040 online Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. Ez 1040 online They are part of a program of study that can qualify you for a new profession. Ez 1040 online Teaching and Related Duties All teaching and related duties are considered the same general kind of work. Ez 1040 online A change in duties in any of the following ways is not considered a change to a new business. Ez 1040 online Elementary school teacher to secondary school teacher. Ez 1040 online Teacher of one subject, such as biology, to teacher of another subject, such as art. Ez 1040 online Classroom teacher to guidance counselor. Ez 1040 online Classroom teacher to school administrator. Ez 1040 online What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education , you can generally deduct your education expenses as business expenses. Ez 1040 online If you are not self-employed, you can deduct business expenses only if you itemize your deductions. Ez 1040 online You cannot deduct expenses related to tax-exempt and excluded income. Ez 1040 online Deductible expenses. Ez 1040 online   The following education expenses can be deducted. Ez 1040 online Tuition, books, supplies, lab fees, and similar items. Ez 1040 online Certain transportation and travel costs. Ez 1040 online Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. Ez 1040 online Nondeductible expenses. Ez 1040 online   You cannot deduct personal or capital expenses. Ez 1040 online For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. Ez 1040 online This amount is a personal expense. Ez 1040 online Unclaimed reimbursement. Ez 1040 online   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. Ez 1040 online Example. Ez 1040 online Your employer agrees to pay your education expenses if you file a voucher showing your expenses. Ez 1040 online You do not file a voucher, and you do not get reimbursed. Ez 1040 online Because you did not file a voucher, you cannot deduct the expenses on your tax return. Ez 1040 online Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. Ez 1040 online If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. Ez 1040 online Temporary basis. Ez 1040 online   You go to school on a temporary basis if either of the following situations applies to you. Ez 1040 online Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. Ez 1040 online Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Ez 1040 online Your attendance is temporary up to the date you determine it will last more than 1 year. Ez 1040 online Note. Ez 1040 online If you are in either situation (1) or (2), your attendance is not temporary if facts and circumstances indicate otherwise. Ez 1040 online Attendance not on a temporary basis. Ez 1040 online   You do not go to school on a temporary basis if either of the following situations apply to you. Ez 1040 online Your attendance at school is realistically expected to last more than 1 year. Ez 1040 online It does not matter how long you actually attend. Ez 1040 online Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Ez 1040 online Your attendance is not temporary after the date you determine it will last more than 1 year. Ez 1040 online Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. Ez 1040 online This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. Ez 1040 online Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Ez 1040 online Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. Ez 1040 online Example 1. Ez 1040 online You regularly work in a nearby town, and go directly from work to home. Ez 1040 online You also attend school every work night for 3 months to take a course that improves your job skills. Ez 1040 online Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. Ez 1040 online This is true regardless of the distance traveled. Ez 1040 online Example 2. Ez 1040 online Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. Ez 1040 online You can deduct your transportation expenses from your regular work site to school and then home. Ez 1040 online Example 3. Ez 1040 online Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Ez 1040 online Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. Ez 1040 online Example 4. Ez 1040 online Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Ez 1040 online Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. Ez 1040 online If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. Ez 1040 online If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. Ez 1040 online Using your car. Ez 1040 online   If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. Ez 1040 online The standard mileage rate for miles driven from January 1, 2013, through December 31, 2013 is 56½ cents per mile. Ez 1040 online Whichever method you use, you can also deduct parking fees and tolls. Ez 1040 online See chapter 26 for information on deducting your actual expenses of using a car. Ez 1040 online Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. Ez 1040 online Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. Ez 1040 online For more information, see chapter 26. Ez 1040 online You cannot deduct expenses for personal activities, such as sightseeing, visiting, or entertaining. Ez 1040 online Mainly personal travel. Ez 1040 online   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. Ez 1040 online You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. Ez 1040 online   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. Ez 1040 online An important factor is the comparison of time spent on personal activities with time spent on educational activities. Ez 1040 online If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. Ez 1040 online Example 1. Ez 1040 online John works in Newark, New Jersey. Ez 1040 online He traveled to Chicago to take a deductible 1-week course at the request of his employer. Ez 1040 online His main reason for going to Chicago was to take the course. Ez 1040 online While there, he took a sight-seeing trip, entertained some friends, and took a side trip to Pleasantville for a day. Ez 1040 online Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. Ez 1040 online He cannot deduct his transportation expenses of going to Pleasantville. Ez 1040 online He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. Ez 1040 online Example 2. Ez 1040 online Sue works in Boston. Ez 1040 online She went to a university in Michigan to take a course for work. Ez 1040 online The course is qualifying work-related education. Ez 1040 online She took one course, which is one-fourth of a full course load of study. Ez 1040 online She spent the rest of the time on personal activities. Ez 1040 online Her reasons for taking the course in Michigan were all personal. Ez 1040 online Sue's trip is mainly personal because three-fourths of her time is considered personal time. Ez 1040 online She cannot deduct the cost of her round-trip train ticket to Michigan. Ez 1040 online She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. Ez 1040 online Example 3. Ez 1040 online Dave works in Nashville and recently traveled to California to take a 2-week seminar. Ez 1040 online The seminar is qualifying work-related education. Ez 1040 online While there, he spent an extra 8 weeks on personal activities. Ez 1040 online The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. Ez 1040 online Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. Ez 1040 online He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. Ez 1040 online Cruises and conventions. Ez 1040 online   Certain cruises and conventions offer seminars or courses as part of their itinerary. Ez 1040 online Even if the seminars or courses are work-related, your deduction for travel may be limited. Ez 1040 online This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. Ez 1040 online   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. Ez 1040 online 50% limit on meals. Ez 1040 online   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. Ez 1040 online You cannot have been reimbursed for the meals. Ez 1040 online   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. Ez 1040 online Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. Ez 1040 online Example. Ez 1040 online You are a French language teacher. Ez 1040 online While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. Ez 1040 online You chose your itinerary and most of your activities to improve your French language skills. Ez 1040 online You cannot deduct your travel expenses as education expenses. Ez 1040 online This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. Ez 1040 online No Double Benefit Allowed You cannot do either of the following. Ez 1040 online Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, the tuition and fees deduction (see chapter 35). Ez 1040 online Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. Ez 1040 online See Adjustments to Qualifying Work-Related Education Expenses , next. Ez 1040 online Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. Ez 1040 online You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. Ez 1040 online For more information, see chapter 12 of Publication 970. Ez 1040 online Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see chapter 1 of Publication 970), The tax-free part of Pell grants (see chapter 1 of Publication 970), The tax-free part of employer-provided educational assistance (see chapter 11 of Publication 970), Veterans' educational assistance (see chapter 1 of Publication 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received for education assistance. Ez 1040 online Amounts that do not reduce qualifying work-related education expenses. Ez 1040 online   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Ez 1040 online   Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. Ez 1040 online Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. Ez 1040 online There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. Ez 1040 online You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. Ez 1040 online For information on how to treat reimbursements under both accountable and nonaccountable plans, see Reimbursements in chapter 26. Ez 1040 online Deducting Business Expenses Self-employed persons and employees report business expenses differently. Ez 1040 online The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. Ez 1040 online Self-Employed Persons If you are self-employed, report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C, C-EZ, or F). Ez 1040 online If your educational expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. Ez 1040 online See the instructions for the form you file for information on how to complete it. Ez 1040 online Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. Ez 1040 online If either (1) or (2) applies, you can deduct the total qualifying cost. Ez 1040 online If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. Ez 1040 online In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21. Ez 1040 online (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Ez 1040 online ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Ez 1040 online See chapter 28. Ez 1040 online Form 2106 or 2106-EZ. Ez 1040 online   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or Form 2106-EZ. Ez 1040 online Form not required. Ez 1040 online   Do not complete either Form 2106 or Form 2106-EZ if: If amounts included in box 1 of your Form W-2, are not considered reimbursements, and You are not claiming travel, transportation, meal, or entertainment expenses. Ez 1040 online   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21. Ez 1040 online (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Ez 1040 online ) Using Form 2106-EZ. Ez 1040 online   This form is shorter and easier to use than Form 2106. Ez 1040 online Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. Ez 1040 online   If you do not meet both of these requirements, use Form 2106. Ez 1040 online Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. Ez 1040 online Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24. Ez 1040 online You do not have to itemize your deductions on Schedule A (Form 1040), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. Ez 1040 online You must complete Form 2106 or 2106-EZ to figure your deduction, even if you meet the requirements described earlier under Form not required . Ez 1040 online For more information on qualified performing artists, see chapter 6 of Publication 463. Ez 1040 online Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28. Ez 1040 online They are not subject to the 2%-of-adjusted-gross-income limit. Ez 1040 online To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . Ez 1040 online For more information on impairment-related work expenses, see chapter 6 of Publication 463. Ez 1040 online Recordkeeping You must keep records as proof of any deduction claimed on your tax return. Ez 1040 online Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. Ez 1040 online For specific information about keeping records of business expenses, see Recordkeeping in chapter 26. Ez 1040 online Prev  Up  Next   Home   More Online Publications
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The Ez 1040 Online

Ez 1040 online 3. Ez 1040 online   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. Ez 1040 online Dual use of assets or facilities. Ez 1040 online Exploitation of exempt functions. Ez 1040 online ExamplesExceptions. Ez 1040 online Excluded Trade or Business ActivitiesQualified sponsorship payment. Ez 1040 online Advertising. Ez 1040 online Exception for contingent payments. Ez 1040 online Exception for periodicals. Ez 1040 online Exception for conventions and trade shows. Ez 1040 online Legal definition. Ez 1040 online Legal where played. Ez 1040 online No for-profit games where played. Ez 1040 online Unrelated business income. Ez 1040 online   Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. Ez 1040 online   Certain trade or business activities are not treated as an unrelated trade or business. Ez 1040 online See Excluded Trade or Business Activities, later. Ez 1040 online Trade or business. Ez 1040 online   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. Ez 1040 online An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. Ez 1040 online   For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. Ez 1040 online Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. Ez 1040 online Regularly conducted. Ez 1040 online   Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. Ez 1040 online   For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. Ez 1040 online The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. Ez 1040 online However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. Ez 1040 online Not substantially related. Ez 1040 online    A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). Ez 1040 online Whether an activity contributes importantly depends in each case on the facts involved. Ez 1040 online   In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. Ez 1040 online For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. Ez 1040 online The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Ez 1040 online   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. Ez 1040 online Selling of products of exempt functions. Ez 1040 online   Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. Ez 1040 online Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. Ez 1040 online   However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. Ez 1040 online For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. Ez 1040 online But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. Ez 1040 online , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. Ez 1040 online Dual use of assets or facilities. Ez 1040 online   If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. Ez 1040 online The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. Ez 1040 online   For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. Ez 1040 online The theater is a principal feature of the museum and operates continuously while the museum is open to the public. Ez 1040 online If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. Ez 1040 online   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. Ez 1040 online Exploitation of exempt functions. Ez 1040 online   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. Ez 1040 online When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. Ez 1040 online Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. Ez 1040 online   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. Ez 1040 online Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. Ez 1040 online Sales commissions. Ez 1040 online   An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. Ez 1040 online Artists' facilities. Ez 1040 online   An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. Ez 1040 online These two activities do not contribute importantly to accomplishing the organization's exempt purpose. Ez 1040 online Therefore, they are unrelated trades or businesses. Ez 1040 online Membership list sales. Ez 1040 online   An exempt educational organization regularly sells membership mailing lists to business firms. Ez 1040 online This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. Ez 1040 online Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. Ez 1040 online Hospital facilities. Ez 1040 online   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. Ez 1040 online The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. Ez 1040 online The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. Ez 1040 online   The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. Ez 1040 online These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. Ez 1040 online Book publishing. Ez 1040 online   An exempt organization engages primarily in activities that further its exempt purposes. Ez 1040 online It also owns the publication rights to a book that does not relate to any of its exempt purposes. Ez 1040 online The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. Ez 1040 online These activities constitute a trade or business regularly conducted. Ez 1040 online Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. Ez 1040 online   However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. Ez 1040 online See Royalties under Exclusions in chapter 4. Ez 1040 online School handicraft shop. Ez 1040 online   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. Ez 1040 online The students are paid a percentage of the sales price. Ez 1040 online In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. Ez 1040 online The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. Ez 1040 online Although many local participants are former students of the school, any qualified person may participate in the program. Ez 1040 online The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. Ez 1040 online School facilities. Ez 1040 online   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. Ez 1040 online During the summer, the school operates a tennis club open to the general public. Ez 1040 online Employees of the school run the club, including collecting membership fees and scheduling court time. Ez 1040 online   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. Ez 1040 online The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. Ez 1040 online   In both situations, the exempt purpose is the advancement of education. Ez 1040 online Furnishing tennis facilities in the manner described does not further that exempt purpose. Ez 1040 online These activities are unrelated trades or businesses. Ez 1040 online However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. Ez 1040 online See Rents under Exclusions in chapter 4. Ez 1040 online Services provided with lease. Ez 1040 online   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. Ez 1040 online Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. Ez 1040 online It also provides dressing room, linen, and stadium security services for the professional team. Ez 1040 online   Leasing of the stadium is an unrelated trade or business. Ez 1040 online In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. Ez 1040 online Therefore, the income from this lease is rent from real property and unrelated business taxable income. Ez 1040 online Broadcasting rights. Ez 1040 online   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. Ez 1040 online Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. Ez 1040 online An athletic program is considered an integral part of the educational process of a university. Ez 1040 online   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. Ez 1040 online Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. Ez 1040 online Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. Ez 1040 online   In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. Ez 1040 online The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. Ez 1040 online   The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. Ez 1040 online The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. Ez 1040 online Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. Ez 1040 online Yearbook advertising. Ez 1040 online   An exempt organization receives income from the sale of advertising in its annual yearbook. Ez 1040 online The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. Ez 1040 online This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. Ez 1040 online This advertising activity is an unrelated trade or business. Ez 1040 online Pet boarding and grooming services. Ez 1040 online   An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. Ez 1040 online These activities do not contribute importantly to its purpose of preventing cruelty to animals. Ez 1040 online Museum eating facilities. Ez 1040 online   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. Ez 1040 online Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. Ez 1040 online The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. Ez 1040 online Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. Ez 1040 online Halfway house workshop. Ez 1040 online   A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. Ez 1040 online The profits are applied to the operating costs of the halfway house. Ez 1040 online The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. Ez 1040 online Travel tour programs. Ez 1040 online   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. Ez 1040 online Example 1. Ez 1040 online A tax-exempt university alumni association provides a travel tour program for its members and their families. Ez 1040 online The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. Ez 1040 online It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. Ez 1040 online The organization provides an employee for each tour as a tour leader. Ez 1040 online There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. Ez 1040 online By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. Ez 1040 online Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. Ez 1040 online Therefore, the sale of the travel tours is an unrelated trade or business. Ez 1040 online Example 2. Ez 1040 online A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. Ez 1040 online These tours are conducted by teachers and others certified by the state board of education. Ez 1040 online The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. Ez 1040 online A tour's study program consists of instruction on subjects related to the location being visited on the tour. Ez 1040 online Each tour group brings along a library of material related to the subjects being studied on the tour. Ez 1040 online During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. Ez 1040 online Examinations are given at the end of each tour. Ez 1040 online The state board of education awards academic credit for tour participation. Ez 1040 online Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. Ez 1040 online Insurance programs. Ez 1040 online   An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. Ez 1040 online Exceptions. Ez 1040 online   Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. Ez 1040 online Magazine publishing. Ez 1040 online   An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. Ez 1040 online   By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. Ez 1040 online This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. Ez 1040 online   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. Ez 1040 online Directory of members. Ez 1040 online   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. Ez 1040 online Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. Ez 1040 online The directory contains no commercial advertisement and is sold only to the organization's members. Ez 1040 online   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. Ez 1040 online Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. Ez 1040 online The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. Ez 1040 online This directory differs from the publication discussed next because of its noncommercial characteristics. Ez 1040 online Sales of advertising space. Ez 1040 online   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. Ez 1040 online The journal is distributed without charge, mainly to the organization's members. Ez 1040 online   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. Ez 1040 online Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. Ez 1040 online A business firm identified in a separate space is further identified in an Index of Advertisers. Ez 1040 online   The organization solicits advertising by personal contacts. Ez 1040 online Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. Ez 1040 online The organization also solicits advertising in form letters appealing for corporate and personal contributions. Ez 1040 online   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. Ez 1040 online Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. Ez 1040 online Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. Ez 1040 online However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. Ez 1040 online In that case, other factors should also be considered in determining whether a commercial benefit can be expected. Ez 1040 online Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. Ez 1040 online   In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. Ez 1040 online However, the purchaser of a listing cannot expect more than an inconsequential benefit. Ez 1040 online Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. Ez 1040 online Publishing legal notices. Ez 1040 online   A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. Ez 1040 online The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. Ez 1040 online The state designated the bar association's journal as the place to publish the required notices. Ez 1040 online   The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. Ez 1040 online Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. Ez 1040 online Therefore, the advertising income is unrelated trade or business income. Ez 1040 online   On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. Ez 1040 online This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. Ez 1040 online Therefore, the publishing of legal notices does not constitute an unrelated trade or business. Ez 1040 online Museum greeting card sales. Ez 1040 online    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. Ez 1040 online Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. Ez 1040 online The cards contain appropriate greetings and are personalized on request. Ez 1040 online   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. Ez 1040 online It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. Ez 1040 online As a result, a large number of cards are sold at a significant profit. Ez 1040 online   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. Ez 1040 online The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. Ez 1040 online The cards may encourage more people to visit the museum itself to share in its educational programs. Ez 1040 online The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. Ez 1040 online Therefore, these sales activities are not an unrelated trade or business. Ez 1040 online Museum shop. Ez 1040 online   An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. Ez 1040 online   The shop also rents originals or reproductions of paintings contained in its collection. Ez 1040 online All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. Ez 1040 online   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. Ez 1040 online   The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. Ez 1040 online The same is true for the sale of literature relating to art. Ez 1040 online Therefore, these sales activities are not an unrelated trade or business. Ez 1040 online   On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. Ez 1040 online The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. Ez 1040 online Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. Ez 1040 online Therefore, these sales are an unrelated trade or business. Ez 1040 online Business league's parking and bus services. Ez 1040 online   A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. Ez 1040 online It also operates, as an insubstantial part of its activities, a park and shop plan. Ez 1040 online   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. Ez 1040 online The merchants cannot offer free or discount parking or bus fares to their customers. Ez 1040 online   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. Ez 1040 online Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. Ez 1040 online   Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. Ez 1040 online That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. Ez 1040 online   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. Ez 1040 online This provides a particular service to individual members of the organization and does not further its exempt purpose. Ez 1040 online Therefore, operating the park and shop plan is an unrelated trade or business. Ez 1040 online Youth residence. Ez 1040 online   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. Ez 1040 online The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. Ez 1040 online The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. Ez 1040 online The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. Ez 1040 online Health club program. Ez 1040 online   An exempt charitable organization's purpose is to provide for the welfare of young people. Ez 1040 online The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. Ez 1040 online Nominal annual dues are charged for membership in the organization and use of the facilities. Ez 1040 online   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. Ez 1040 online The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. Ez 1040 online   The health club program is in addition to the general physical fitness program of the organization. Ez 1040 online Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. Ez 1040 online Miniature golf course. Ez 1040 online   An exempt youth welfare organization operates a miniature golf course that is open to the general public. Ez 1040 online The course, which is managed by salaried employees, is substantially similar to commercial courses. Ez 1040 online The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. Ez 1040 online   The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. Ez 1040 online Sales of hearing aids. Ez 1040 online   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. Ez 1040 online This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. Ez 1040 online It is not an unrelated trade or business. Ez 1040 online Nonpatient laboratory testing. Ez 1040 online   Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. Ez 1040 online However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. Ez 1040 online Selling endorsements. Ez 1040 online   An exempt scientific organization enjoys an excellent reputation in the field of biological research. Ez 1040 online It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. Ez 1040 online Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. Ez 1040 online Accordingly, the sale of endorsements is an unrelated trade or business. Ez 1040 online Sponsoring entertainment events. Ez 1040 online   An exempt university has a regular faculty and a regularly enrolled student body. Ez 1040 online During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. Ez 1040 online Members of the general public also are admitted. Ez 1040 online The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Ez 1040 online Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. Ez 1040 online Therefore, the activity is not an unrelated trade or business. Ez 1040 online Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. Ez 1040 online Volunteer workforce. Ez 1040 online   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. Ez 1040 online Example 1. Ez 1040 online A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. Ez 1040 online Example 2. Ez 1040 online A volunteer fire company conducts weekly public dances. Ez 1040 online Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. Ez 1040 online However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. Ez 1040 online Convenience of members. Ez 1040 online   A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. Ez 1040 online For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. Ez 1040 online Qualified sponsorship activities. Ez 1040 online   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. Ez 1040 online Qualified sponsorship payment. Ez 1040 online   This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. Ez 1040 online “Use or acknowledgment” does not include advertising the sponsor's products or services. Ez 1040 online The organization's activities include all its activities, whether or not related to its exempt purposes. Ez 1040 online   For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. Ez 1040 online   Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. Ez 1040 online Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. Ez 1040 online Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. Ez 1040 online   Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. Ez 1040 online   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. Ez 1040 online For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. Ez 1040 online Advertising. Ez 1040 online   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. Ez 1040 online For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Ez 1040 online   Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. Ez 1040 online   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. Ez 1040 online In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. Ez 1040 online Exception for contingent payments. Ez 1040 online   A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. Ez 1040 online However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. Ez 1040 online Exception for periodicals. Ez 1040 online   A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. Ez 1040 online For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. Ez 1040 online It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). Ez 1040 online   The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. Ez 1040 online See Sales of advertising space under Examples, earlier in this chapter. Ez 1040 online Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Ez 1040 online Exception for conventions and trade shows. Ez 1040 online   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. Ez 1040 online The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. Ez 1040 online Selling donated merchandise. Ez 1040 online   A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. Ez 1040 online For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. Ez 1040 online Employee association sales. Ez 1040 online   The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. Ez 1040 online This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. Ez 1040 online Bingo games. Ez 1040 online   Certain bingo games are not included in the term “unrelated trade or business. Ez 1040 online ” To qualify for this exclusion, the bingo game must meet the following requirements. Ez 1040 online It meets the legal definition of bingo. Ez 1040 online It is legal where it is played. Ez 1040 online It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. Ez 1040 online Legal definition. Ez 1040 online   For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. Ez 1040 online   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. Ez 1040 online For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. Ez 1040 online Legal where played. Ez 1040 online   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. Ez 1040 online The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. Ez 1040 online No for-profit games where played. Ez 1040 online   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. Ez 1040 online Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. Ez 1040 online Example. Ez 1040 online Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. Ez 1040 online In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. Ez 1040 online Several for-profit organizations conduct nightly games. Ez 1040 online Y conducts weekly bingo games in city S, while X conducts weekly games in county R. Ez 1040 online Since state law confines the for-profit organizations to city S, local jurisdiction controls. Ez 1040 online Y's bingo games conducted in city S are an unrelated trade or business. Ez 1040 online However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. Ez 1040 online Gambling activities other than bingo. Ez 1040 online   Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. Ez 1040 online Pole rentals. Ez 1040 online   The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). Ez 1040 online A qualified pole rental is the rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. Ez 1040 online For this purpose, the term rental includes any sale of the right to use the pole (or other structure). Ez 1040 online Distribution of low cost articles. Ez 1040 online   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. Ez 1040 online This applies to organizations described in section 501 that are eligible to receive charitable contributions. Ez 1040 online   A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. Ez 1040 online   An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. Ez 1040 online The maximum cost of a low cost article is $9. Ez 1040 online 70 for 2011. Ez 1040 online The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. Ez 1040 online Exchange or rental of member lists. Ez 1040 online   The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. Ez 1040 online Hospital services. Ez 1040 online   The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. Ez 1040 online This exclusion applies only to services described in section 501(e)(1)(A). Ez 1040 online Public entertainment activity. Ez 1040 online   An unrelated trade or business does not include a qualified public entertainment activity. Ez 1040 online A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. Ez 1040 online   A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. Ez 1040 online   For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. Ez 1040 online Its conducting qualified public entertainment activities will not affect determination of its exempt status. Ez 1040 online Convention or trade show activity. Ez 1040 online   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. Ez 1040 online   A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. Ez 1040 online   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). Ez 1040 online The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. Ez 1040 online   The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. Ez 1040 online For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. Ez 1040 online    Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. Ez 1040 online The trade show itself must be a qualified convention and trade show activity. Ez 1040 online The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. Ez 1040 online Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. Ez 1040 online Prev  Up  Next   Home   More Online Publications