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File 1040x Electronically

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File 1040x Electronically

File 1040x electronically Part One -   The Income Tax Return The four chapters in this part provide basic information on the tax system. File 1040x electronically They take you through the first steps of filling out a tax return—such as deciding what your filing status is, how many exemptions you can take, and what form to file. File 1040x electronically They also discuss recordkeeping requirements, IRS e-file (electronic filing), certain penalties, and the two methods used to pay tax during the year: withholding and estimated tax. File 1040x electronically Table of Contents 1. File 1040x electronically   Filing InformationWhat's New Reminders Introduction Do I Have To File a Return?Individuals—In General Dependents Certain Children Under Age 19 or Full-Time Students Self-Employed Persons Aliens Who Should File Which Form Should I Use?Form 1040EZ Form 1040A Form 1040 Does My Return Have To Be on Paper?IRS e-file When Do I Have To File?Private delivery services. File 1040x electronically Extensions of Time To File How Do I Prepare My Return?When Do I Report My Income and Expenses? Social Security Number (SSN) Presidential Election Campaign Fund Computations Attachments Third Party Designee Signatures Paid Preparer Refunds Amount You Owe Gift To Reduce Debt Held by the Public Name and Address Where Do I File? What Happens After I File?What Records Should I Keep? Why Keep Records? Kinds of Records to Keep Basic Records How Long to Keep Records Refund Information Interest on Refunds Change of Address What If I Made a Mistake?Amended Returns and Claims for Refund Penalties Identity Theft 2. File 1040x electronically   Filing StatusWhat's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. File 1040x electronically Divorce and remarriage. File 1040x electronically Annulled marriages. File 1040x electronically Head of household or qualifying widow(er) with dependent child. File 1040x electronically Considered married. File 1040x electronically Same-sex marriage. File 1040x electronically Spouse died during the year. File 1040x electronically Married persons living apart. File 1040x electronically Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child 3. File 1040x electronically   Personal Exemptions and DependentsWhat's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. File 1040x electronically Taxpayer identification numbers for aliens. File 1040x electronically Taxpayer identification numbers for adoptees. File 1040x electronically 4. File 1040x electronically   Tax Withholding and Estimated TaxWhat's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 Prev  Up  Next   Home   More Online Publications
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The File 1040x Electronically

File 1040x electronically 8. File 1040x electronically   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. File 1040x electronically Cash method. File 1040x electronically Car and Truck ExpensesOffice in the home. File 1040x electronically Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. File 1040x electronically InsuranceHow to figure the deduction. File 1040x electronically Interest Legal and Professional FeesTax preparation fees. File 1040x electronically Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. File 1040x electronically Taxi, commuter bus, and limousine. File 1040x electronically Baggage and shipping. File 1040x electronically Car or truck. File 1040x electronically Meals and lodging. File 1040x electronically Cleaning. File 1040x electronically Telephone. File 1040x electronically Tips. File 1040x electronically More information. File 1040x electronically Business Use of Your HomeExceptions to exclusive use. File 1040x electronically Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. File 1040x electronically These costs are known as business expenses. File 1040x electronically These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. File 1040x electronically To be deductible, a business expense must be both ordinary and necessary. File 1040x electronically An ordinary expense is one that is common and accepted in your field of business. File 1040x electronically A necessary expense is one that is helpful and appropriate for your business. File 1040x electronically An expense does not have to be indispensable to be considered necessary. File 1040x electronically For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. File 1040x electronically If you have an expense that is partly for business and partly personal, separate the personal part from the business part. File 1040x electronically The personal part is not deductible. File 1040x electronically Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. File 1040x electronically Bad Debts If someone owes you money you cannot collect, you have a bad debt. File 1040x electronically There are two kinds of bad debts, business bad debts and nonbusiness bad debts. File 1040x electronically A business bad debt is generally one that comes from operating your trade or business. File 1040x electronically You may be able to deduct business bad debts as an expense on your business tax return. File 1040x electronically Business bad debt. File 1040x electronically   A business bad debt is a loss from the worthlessness of a debt that was either of the following. File 1040x electronically Created or acquired in your business. File 1040x electronically Closely related to your business when it became partly or totally worthless. File 1040x electronically A debt is closely related to your business if your primary motive for incurring the debt is a business reason. File 1040x electronically   Business bad debts are mainly the result of credit sales to customers. File 1040x electronically They can also be the result of loans to suppliers, clients, employees, or distributors. File 1040x electronically Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. File 1040x electronically If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. File 1040x electronically    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. File 1040x electronically Accrual method. File 1040x electronically   If you use an accrual method of accounting, you normally report income as you earn it. File 1040x electronically You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. File 1040x electronically Cash method. File 1040x electronically   If you use the cash method of accounting, you normally report income when you receive payment. File 1040x electronically You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. File 1040x electronically More information. File 1040x electronically   For more information about business bad debts, see chapter 10 in Publication 535. File 1040x electronically Nonbusiness bad debts. File 1040x electronically   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). File 1040x electronically For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. File 1040x electronically Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. File 1040x electronically You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. File 1040x electronically You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. File 1040x electronically See Form 8936 and Form 8910 for more information. File 1040x electronically Local transportation expenses. File 1040x electronically   Local transportation expenses include the ordinary and necessary costs of all the following. File 1040x electronically Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. File 1040x electronically Tax home is defined later. File 1040x electronically Visiting clients or customers. File 1040x electronically Going to a business meeting away from your regular workplace. File 1040x electronically Getting from your home to a temporary workplace when you have one or more regular places of work. File 1040x electronically These temporary workplaces can be either within the area of your tax home or outside that area. File 1040x electronically Local business transportation does not include expenses you have while traveling away from home overnight. File 1040x electronically Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. File 1040x electronically However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. File 1040x electronically   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. File 1040x electronically It includes the entire city or general area in which your business or work is located. File 1040x electronically Example. File 1040x electronically You operate a printing business out of rented office space. File 1040x electronically You use your van to deliver completed jobs to your customers. File 1040x electronically You can deduct the cost of round-trip transportation between your customers and your print shop. File 1040x electronically    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. File 1040x electronically These costs are personal commuting expenses. File 1040x electronically Office in the home. File 1040x electronically   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. File 1040x electronically For more information, see Business Use of Your Home, later. File 1040x electronically Example. File 1040x electronically You are a graphics designer. File 1040x electronically You operate your business out of your home. File 1040x electronically Your home qualifies as your principal place of business. File 1040x electronically You occasionally have to drive to your clients to deliver your completed work. File 1040x electronically You can deduct the cost of the round-trip transportation between your home and your clients. File 1040x electronically Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. File 1040x electronically Standard mileage rate. File 1040x electronically Actual expenses. File 1040x electronically Standard mileage rate. File 1040x electronically   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. File 1040x electronically For 2013, the standard mileage rate is 56. File 1040x electronically 5 cents per mile. File 1040x electronically    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. File 1040x electronically Choosing the standard mileage rate. File 1040x electronically   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. File 1040x electronically In later years, you can choose to use either the standard mileage rate or actual expenses. File 1040x electronically   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). File 1040x electronically Standard mileage rate not allowed. File 1040x electronically   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. File 1040x electronically Parking fees and tolls. File 1040x electronically   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. File 1040x electronically (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. File 1040x electronically ) Actual expenses. File 1040x electronically   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. File 1040x electronically    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. File 1040x electronically   Actual car expenses include the costs of the following items. File 1040x electronically Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. File 1040x electronically You can divide your expenses based on the miles driven for each purpose. File 1040x electronically Example. File 1040x electronically You are the sole proprietor of a flower shop. File 1040x electronically You drove your van 20,000 miles during the year. File 1040x electronically 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). File 1040x electronically You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. File 1040x electronically More information. File 1040x electronically   For more information about the rules for claiming car and truck expenses, see Publication 463. File 1040x electronically Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. File 1040x electronically The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. File 1040x electronically For details, see chapter 11 in Publication 535. File 1040x electronically That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. File 1040x electronically Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. File 1040x electronically You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. File 1040x electronically This method of deducting the cost of business property is called depreciation. File 1040x electronically The discussion here is brief. File 1040x electronically You will find more information about depreciation in Publication 946. File 1040x electronically What property can be depreciated?   You can depreciate property if it meets all the following requirements. File 1040x electronically It must be property you own. File 1040x electronically It must be used in business or held to produce income. File 1040x electronically You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. File 1040x electronically It must have a useful life that extends substantially beyond the year it is placed in service. File 1040x electronically It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. File 1040x electronically You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. File 1040x electronically It must not be excepted property. File 1040x electronically This includes property placed in service and disposed of in the same year. File 1040x electronically Repairs. File 1040x electronically    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. File 1040x electronically You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. File 1040x electronically Depreciation method. File 1040x electronically   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). File 1040x electronically MACRS is discussed in detail in Publication 946. File 1040x electronically Section 179 deduction. File 1040x electronically   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. File 1040x electronically This deduction is known as the “section 179 deduction. File 1040x electronically ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). File 1040x electronically See IRC 179(e). File 1040x electronically   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. File 1040x electronically The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). File 1040x electronically Special rules apply to trucks and vans. File 1040x electronically For more information, see Publication 946. File 1040x electronically It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. File 1040x electronically    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. File 1040x electronically For more information, see the Instructions for Form 4562 or Publication 946. File 1040x electronically Listed property. File 1040x electronically   You must follow special rules and recordkeeping requirements when depreciating listed property. File 1040x electronically Listed property is any of the following. File 1040x electronically Most passenger automobiles. File 1040x electronically Most other property used for transportation. File 1040x electronically Any property of a type generally used for entertainment, recreation, or amusement. File 1040x electronically Certain computers and related peripheral equipment. File 1040x electronically   For more information about listed property, see Publication 946. File 1040x electronically Form 4562. File 1040x electronically   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. File 1040x electronically Depreciation on property placed in service during the current tax year. File 1040x electronically A section 179 deduction. File 1040x electronically Depreciation on any listed property (regardless of when it was placed in service). File 1040x electronically    If you have to use Form 4562, you must file Schedule C. File 1040x electronically You cannot use Schedule C-EZ. File 1040x electronically   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. File 1040x electronically The pay may be in cash, property, or services. File 1040x electronically To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. File 1040x electronically In addition, the pay must meet both the following tests. File 1040x electronically The pay must be reasonable. File 1040x electronically The pay must be for services performed. File 1040x electronically Chapter 2 in Publication 535 explains and defines these requirements. File 1040x electronically You cannot deduct your own salary or any personal withdrawals you make from your business. File 1040x electronically As a sole proprietor, you are not an employee of the business. File 1040x electronically If you had employees during the year, you must use Schedule C. File 1040x electronically You cannot use Schedule C-EZ. File 1040x electronically Kinds of pay. File 1040x electronically   Some of the ways you may provide pay to your employees are listed below. File 1040x electronically For an explanation of each of these items, see chapter 2 in Publication 535. File 1040x electronically Awards. File 1040x electronically Bonuses. File 1040x electronically Education expenses. File 1040x electronically Fringe benefits (discussed later). File 1040x electronically Loans or advances you do not expect the employee to repay if they are for personal services actually performed. File 1040x electronically Property you transfer to an employee as payment for services. File 1040x electronically Reimbursements for employee business expenses. File 1040x electronically Sick pay. File 1040x electronically Vacation pay. File 1040x electronically Fringe benefits. File 1040x electronically   A fringe benefit is a form of pay for the performance of services. File 1040x electronically The following are examples of fringe benefits. File 1040x electronically Benefits under qualified employee benefit programs. File 1040x electronically Meals and lodging. File 1040x electronically The use of a car. File 1040x electronically Flights on airplanes. File 1040x electronically Discounts on property or services. File 1040x electronically Memberships in country clubs or other social clubs. File 1040x electronically Tickets to entertainment or sporting events. File 1040x electronically   Employee benefit programs include the following. File 1040x electronically Accident and health plans. File 1040x electronically Adoption assistance. File 1040x electronically Cafeteria plans. File 1040x electronically Dependent care assistance. File 1040x electronically Educational assistance. File 1040x electronically Group-term life insurance coverage. File 1040x electronically Welfare benefit funds. File 1040x electronically   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. File 1040x electronically For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. File 1040x electronically If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. File 1040x electronically    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. File 1040x electronically For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. File 1040x electronically Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. File 1040x electronically Fire, theft, flood, or similar insurance. File 1040x electronically Credit insurance that covers losses from business bad debts. File 1040x electronically Group hospitalization and medical insurance for employees, including long-term care insurance. File 1040x electronically Liability insurance. File 1040x electronically Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. File 1040x electronically Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. File 1040x electronically Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. File 1040x electronically Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. File 1040x electronically Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. File 1040x electronically If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. File 1040x electronically If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. File 1040x electronically Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. File 1040x electronically Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. File 1040x electronically Nondeductible premiums. File 1040x electronically   You cannot deduct premiums on the following kinds of insurance. File 1040x electronically Self-insurance reserve funds. File 1040x electronically You cannot deduct amounts credited to a reserve set up for self-insurance. File 1040x electronically This applies even if you cannot get business insurance coverage for certain business risks. File 1040x electronically However, your actual losses may be deductible. File 1040x electronically For more information, see Publication 547, Casualties, Disasters, and Thefts. File 1040x electronically Loss of earnings. File 1040x electronically You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. File 1040x electronically However, see item (8) in the previous list. File 1040x electronically Certain life insurance and annuities. File 1040x electronically For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. File 1040x electronically You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. File 1040x electronically A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. File 1040x electronically For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. File 1040x electronically The disallowance applies without regard to whom the policy covers. File 1040x electronically Insurance to secure a loan. File 1040x electronically If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. File 1040x electronically Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. File 1040x electronically In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. File 1040x electronically Self-employed health insurance deduction. File 1040x electronically   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. File 1040x electronically How to figure the deduction. File 1040x electronically   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. File 1040x electronically However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. File 1040x electronically You have more than one source of income subject to self-employment tax. File 1040x electronically You file Form 2555 or Form 2555-EZ (relating to foreign earned income). File 1040x electronically You are using amounts paid for qualified long-term care insurance to figure the deduction. File 1040x electronically Prepayment. File 1040x electronically   You cannot deduct expenses in advance, even if you pay them in advance. File 1040x electronically This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. File 1040x electronically Example. File 1040x electronically In 2013, you signed a 3-year insurance contract. File 1040x electronically Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. File 1040x electronically You can deduct in 2014 and 2015 the premium allocable to those years. File 1040x electronically More information. File 1040x electronically   For more information about deducting insurance, see chapter 6 in Publication 535. File 1040x electronically Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. File 1040x electronically Interest relates to your business if you use the proceeds of the loan for a business expense. File 1040x electronically It does not matter what type of property secures the loan. File 1040x electronically You can deduct interest on a debt only if you meet all of the following requirements. File 1040x electronically You are legally liable for that debt. File 1040x electronically Both you and the lender intend that the debt be repaid. File 1040x electronically You and the lender have a true debtor-creditor relationship. File 1040x electronically You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. File 1040x electronically If a loan is part business and part personal, you must divide the interest between the personal part and the business part. File 1040x electronically Example. File 1040x electronically In 2013, you paid $600 interest on a car loan. File 1040x electronically During 2013, you used the car 60% for business and 40% for personal purposes. File 1040x electronically You are claiming actual expenses on the car. File 1040x electronically You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. File 1040x electronically The remaining interest of $240 is a nondeductible personal expense. File 1040x electronically More information. File 1040x electronically   For more information about deducting interest, see chapter 4 in Publication 535. File 1040x electronically That chapter explains the following items. File 1040x electronically Interest you can deduct. File 1040x electronically Interest you cannot deduct. File 1040x electronically How to allocate interest between personal and business use. File 1040x electronically When to deduct interest. File 1040x electronically The rules for a below-market interest rate loan. File 1040x electronically (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. File 1040x electronically ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. File 1040x electronically However, you usually cannot deduct legal fees you pay to acquire business assets. File 1040x electronically Add them to the basis of the property. File 1040x electronically If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. File 1040x electronically The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. File 1040x electronically For more information, see Publication 529, Miscellaneous Deductions. File 1040x electronically Tax preparation fees. File 1040x electronically   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. File 1040x electronically You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. File 1040x electronically   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. File 1040x electronically Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. File 1040x electronically SEP (Simplified Employee Pension) plans. File 1040x electronically SIMPLE (Savings Incentive Match Plan for Employees) plans. File 1040x electronically Qualified plans (including Keogh or H. File 1040x electronically R. File 1040x electronically 10 plans). File 1040x electronically SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. File 1040x electronically You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. File 1040x electronically If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. File 1040x electronically You can also deduct trustees' fees if contributions to the plan do not cover them. File 1040x electronically Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. File 1040x electronically You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. File 1040x electronically Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. File 1040x electronically These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. File 1040x electronically For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). File 1040x electronically Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. File 1040x electronically Rent Expense Rent is any amount you pay for the use of property you do not own. File 1040x electronically In general, you can deduct rent as a business expense only if the rent is for property you use in your business. File 1040x electronically If you have or will receive equity in or title to the property, you cannot deduct the rent. File 1040x electronically Unreasonable rent. File 1040x electronically   You cannot take a rental deduction for unreasonable rents. File 1040x electronically Ordinarily, the issue of reasonableness arises only if you and the lessor are related. File 1040x electronically Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. File 1040x electronically Rent is not unreasonable just because it is figured as a percentage of gross receipts. File 1040x electronically   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. File 1040x electronically For a list of the other related persons, see section 267 of the Internal Revenue Code. File 1040x electronically Rent on your home. File 1040x electronically   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. File 1040x electronically You must meet the requirements for business use of your home. File 1040x electronically For more information, see Business Use of Your Home , later. File 1040x electronically Rent paid in advance. File 1040x electronically   Generally, rent paid in your business is deductible in the year paid or accrued. File 1040x electronically If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. File 1040x electronically You can deduct the rest of your payment only over the period to which it applies. File 1040x electronically More information. File 1040x electronically   For more information about rent, see chapter 3 in Publication 535. File 1040x electronically Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. File 1040x electronically Income taxes. File 1040x electronically   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. File 1040x electronically You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. File 1040x electronically Do not deduct federal income tax. File 1040x electronically Employment taxes. File 1040x electronically   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. File 1040x electronically Employment taxes are discussed briefly in chapter 1. File 1040x electronically You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. File 1040x electronically Deduct these payments as taxes. File 1040x electronically Self-employment tax. File 1040x electronically   You can deduct one-half of your self-employment tax on line 27 of Form 1040. File 1040x electronically Self-employment tax is discussed in chapters 1 and 10. File 1040x electronically Personal property tax. File 1040x electronically   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. File 1040x electronically   You can also deduct registration fees for the right to use property within a state or local area. File 1040x electronically Example. File 1040x electronically May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. File 1040x electronically They had to pay $25 for their annual state license tags and $20 for their city registration sticker. File 1040x electronically They also paid $235 in city personal property tax on the car, for a total of $280. File 1040x electronically They are claiming their actual car expenses. File 1040x electronically Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. File 1040x electronically Real estate taxes. File 1040x electronically   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. File 1040x electronically Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. File 1040x electronically The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. File 1040x electronically   For more information about real estate taxes, see chapter 5 in Publication 535. File 1040x electronically That chapter explains special rules for deducting the following items. File 1040x electronically Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. File 1040x electronically Real estate taxes when you buy or sell property during the year. File 1040x electronically Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. File 1040x electronically Sales tax. File 1040x electronically   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. File 1040x electronically If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. File 1040x electronically If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. File 1040x electronically If the property is depreciable, add the sales tax to the basis for depreciation. File 1040x electronically For information on the basis of property, see Publication 551, Basis of Assets. File 1040x electronically    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. File 1040x electronically Do not include these taxes in gross receipts or sales. File 1040x electronically Excise taxes. File 1040x electronically   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. File 1040x electronically Excise taxes are discussed briefly in chapter 1. File 1040x electronically Fuel taxes. File 1040x electronically   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. File 1040x electronically Do not deduct these taxes as a separate item. File 1040x electronically   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. File 1040x electronically For more information, see Publication 510, Excise Taxes. File 1040x electronically Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. File 1040x electronically Table 8-1. File 1040x electronically When Are Entertainment Expenses Deductible? (Note. File 1040x electronically The following is a summary of the rules for deducting entertainment expenses. File 1040x electronically For more details about these rules, see Publication 463. File 1040x electronically ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. File 1040x electronically Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. File 1040x electronically An ordinary expense is one that is common and accepted in your field of business, trade, or profession. File 1040x electronically A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. File 1040x electronically Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. File 1040x electronically   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. File 1040x electronically Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. File 1040x electronically You cannot deduct expenses that are lavish or extravagant under the circumstances. File 1040x electronically You generally can deduct only 50% of your unreimbursed entertainment expenses. File 1040x electronically Travel expenses. File 1040x electronically   These are the ordinary and necessary expenses of traveling away from home for your business. File 1040x electronically You are traveling away from home if both the following conditions are met. File 1040x electronically Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. File 1040x electronically You need to get sleep or rest to meet the demands of your work while away from home. File 1040x electronically Generally, your tax home is your regular place of business, regardless of where you maintain your family home. File 1040x electronically It includes the entire city or general area in which your business is located. File 1040x electronically See Publication 463 for more information. File 1040x electronically   The following is a brief discussion of the expenses you can deduct. File 1040x electronically Transportation. File 1040x electronically   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. File 1040x electronically Taxi, commuter bus, and limousine. File 1040x electronically   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. File 1040x electronically Baggage and shipping. File 1040x electronically   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. File 1040x electronically Car or truck. File 1040x electronically   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. File 1040x electronically You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. File 1040x electronically If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. File 1040x electronically Meals and lodging. File 1040x electronically   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. File 1040x electronically In most cases, you can deduct only 50% of your meal expenses. File 1040x electronically Cleaning. File 1040x electronically   You can deduct the costs of dry cleaning and laundry while on your business trip. File 1040x electronically Telephone. File 1040x electronically   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. File 1040x electronically Tips. File 1040x electronically   You can deduct the tips you pay for any expense in this list. File 1040x electronically More information. File 1040x electronically   For more information about travel expenses, see Publication 463. File 1040x electronically Entertainment expenses. File 1040x electronically   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. File 1040x electronically In most cases, you can deduct only 50% of these expenses. File 1040x electronically   The following are examples of entertainment expenses. File 1040x electronically Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. File 1040x electronically Providing meals, a hotel suite, or a car to business customers or their families. File 1040x electronically To be deductible, the expenses must meet the rules listed in Table 8-1. File 1040x electronically For details about these rules, see Publication 463. File 1040x electronically Reimbursing your employees for expenses. File 1040x electronically   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. File 1040x electronically The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. File 1040x electronically For details, see chapter 11 in Publication 535. File 1040x electronically That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. File 1040x electronically Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. File 1040x electronically Even then, your deduction may be limited. File 1040x electronically To qualify to claim expenses for business use of your home, you must meet the following tests. File 1040x electronically Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. File 1040x electronically Exclusive use. File 1040x electronically   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. File 1040x electronically The area used for business can be a room or other separately identifiable space. File 1040x electronically The space does not need to be marked off by a permanent partition. File 1040x electronically   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. File 1040x electronically Example. File 1040x electronically You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. File 1040x electronically Your family also uses the den for recreation. File 1040x electronically The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. File 1040x electronically Exceptions to exclusive use. File 1040x electronically   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. File 1040x electronically For the storage of inventory or product samples. File 1040x electronically As a daycare facility. File 1040x electronically For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). File 1040x electronically Regular use. File 1040x electronically   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. File 1040x electronically You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. File 1040x electronically Principal place of business. File 1040x electronically   You can have more than one business location, including your home, for a single trade or business. File 1040x electronically To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. File 1040x electronically To determine your principal place of business, you must consider all the facts and circumstances. File 1040x electronically   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. File 1040x electronically You use it exclusively and regularly for administrative or management activities of your business. File 1040x electronically You have no other fixed location where you conduct substantial administrative or management activities of your business. File 1040x electronically   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. File 1040x electronically The relative importance of the activities performed at each location. File 1040x electronically If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. File 1040x electronically   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. File 1040x electronically However, for other ways to qualify to deduct home office expenses, see Publication 587. File 1040x electronically Deduction limit. File 1040x electronically   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. File 1040x electronically If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. File 1040x electronically   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. File 1040x electronically The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). File 1040x electronically The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. File 1040x electronically Do not include in (2) above your deduction for one-half of your self-employment tax. File 1040x electronically   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. File 1040x electronically New simplified method. File 1040x electronically    The IRS now provides a simplified method to determine your expenses for business use of your home. File 1040x electronically The simplified method is an alternative to calculating and substantiating actual expenses. File 1040x electronically In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. File 1040x electronically The area you use to figure your deduction is limited to 300 square feet. File 1040x electronically For more information, see the Instructions for Schedule C. File 1040x electronically More information. File 1040x electronically   For more information on deducting expenses for the business use of your home, see Publication 587. File 1040x electronically Other Expenses You Can Deduct You may also be able to deduct the following expenses. File 1040x electronically See Publication 535 to find out whether you can deduct them. File 1040x electronically Advertising. File 1040x electronically Bank fees. File 1040x electronically Donations to business organizations. File 1040x electronically Education expenses. File 1040x electronically Energy efficient commercial buildings deduction expenses. File 1040x electronically Impairment-related expenses. File 1040x electronically Interview expense allowances. File 1040x electronically Licenses and regulatory fees. File 1040x electronically Moving machinery. File 1040x electronically Outplacement services. File 1040x electronically Penalties and fines you pay for late performance or nonperformance of a contract. File 1040x electronically Repairs that keep your property in a normal efficient operating condition. File 1040x electronically Repayments of income. File 1040x electronically Subscriptions to trade or professional publications. File 1040x electronically Supplies and materials. File 1040x electronically Utilities. File 1040x electronically Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. File 1040x electronically For more information, see Publication 535. File 1040x electronically Bribes and kickbacks. File 1040x electronically Charitable contributions. File 1040x electronically Demolition expenses or losses. File 1040x electronically Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. File 1040x electronically Lobbying expenses. File 1040x electronically Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. File 1040x electronically Personal, living, and family expenses. File 1040x electronically Political contributions. File 1040x electronically Repairs that add to the value of your property or significantly increase its life. File 1040x electronically Prev  Up  Next   Home   More Online Publications