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Filemy2010taxreturnforfree

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Filemy2010taxreturnforfree

Filemy2010taxreturnforfree 2. Filemy2010taxreturnforfree   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Filemy2010taxreturnforfree The pay may be in cash, property, or services. Filemy2010taxreturnforfree It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Filemy2010taxreturnforfree For information about deducting employment taxes, see chapter 5. Filemy2010taxreturnforfree You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Filemy2010taxreturnforfree Empowerment zone employment credit (Form 8844). Filemy2010taxreturnforfree Indian employment credit (Form 8845). Filemy2010taxreturnforfree Work opportunity credit (Form 5884). Filemy2010taxreturnforfree Credit for employer differential wage payments (Form 8932). Filemy2010taxreturnforfree Reduce your deduction for employee wages by the amount of employment credits you claim. Filemy2010taxreturnforfree For more information about these credits, see the form on which the credit is claimed. Filemy2010taxreturnforfree Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Filemy2010taxreturnforfree Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Filemy2010taxreturnforfree These and other requirements that apply to all business expenses are explained in chapter 1. Filemy2010taxreturnforfree In addition, the pay must meet both of the following tests. Filemy2010taxreturnforfree Test 1. Filemy2010taxreturnforfree It must be reasonable. Filemy2010taxreturnforfree Test 2. Filemy2010taxreturnforfree It must be for services performed. Filemy2010taxreturnforfree The form or method of figuring the pay does not affect its deductibility. Filemy2010taxreturnforfree For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Filemy2010taxreturnforfree Test 1—Reasonableness You must be able to prove that the pay is reasonable. Filemy2010taxreturnforfree Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Filemy2010taxreturnforfree If the pay is excessive, the excess pay is disallowed as a deduction. Filemy2010taxreturnforfree Factors to consider. Filemy2010taxreturnforfree   Determine the reasonableness of pay by the facts and circumstances. Filemy2010taxreturnforfree Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Filemy2010taxreturnforfree   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Filemy2010taxreturnforfree The duties performed by the employee. Filemy2010taxreturnforfree The volume of business handled. Filemy2010taxreturnforfree The character and amount of responsibility. Filemy2010taxreturnforfree The complexities of your business. Filemy2010taxreturnforfree The amount of time required. Filemy2010taxreturnforfree The cost of living in the locality. Filemy2010taxreturnforfree The ability and achievements of the individual employee performing the service. Filemy2010taxreturnforfree The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Filemy2010taxreturnforfree Your policy regarding pay for all your employees. Filemy2010taxreturnforfree The history of pay for each employee. Filemy2010taxreturnforfree Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Filemy2010taxreturnforfree Employee-shareholder salaries. Filemy2010taxreturnforfree   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Filemy2010taxreturnforfree The excessive part of the salary would not be allowed as a salary deduction by the corporation. Filemy2010taxreturnforfree For more information on corporate distributions to shareholders, see Publication 542, Corporations. Filemy2010taxreturnforfree Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Filemy2010taxreturnforfree For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Filemy2010taxreturnforfree Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Filemy2010taxreturnforfree If you give property to an employee as an employee achievement award, your deduction may be limited. Filemy2010taxreturnforfree Achievement awards. Filemy2010taxreturnforfree   An achievement award is an item of tangible personal property that meets all the following requirements. Filemy2010taxreturnforfree It is given to an employee for length of service or safety achievement. Filemy2010taxreturnforfree It is awarded as part of a meaningful presentation. Filemy2010taxreturnforfree It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Filemy2010taxreturnforfree Length-of-service award. Filemy2010taxreturnforfree    An award will qualify as a length-of-service award only if either of the following applies. Filemy2010taxreturnforfree The employee receives the award after his or her first 5 years of employment. Filemy2010taxreturnforfree The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Filemy2010taxreturnforfree Safety achievement award. Filemy2010taxreturnforfree    An award for safety achievement will qualify as an achievement award unless one of the following applies. Filemy2010taxreturnforfree It is given to a manager, administrator, clerical employee, or other professional employee. Filemy2010taxreturnforfree During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Filemy2010taxreturnforfree Deduction limit. Filemy2010taxreturnforfree   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Filemy2010taxreturnforfree $400 for awards that are not qualified plan awards. Filemy2010taxreturnforfree $1,600 for all awards, whether or not qualified plan awards. Filemy2010taxreturnforfree   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Filemy2010taxreturnforfree   A highly compensated employee is an employee who meets either of the following tests. Filemy2010taxreturnforfree The employee was a 5% owner at any time during the year or the preceding year. Filemy2010taxreturnforfree The employee received more than $115,000 in pay for the preceding year. Filemy2010taxreturnforfree You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Filemy2010taxreturnforfree   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Filemy2010taxreturnforfree To figure this average cost, ignore awards of nominal value. Filemy2010taxreturnforfree Deduct achievement awards as a nonwage business expense on your return or business schedule. Filemy2010taxreturnforfree You may not owe employment taxes on the value of some achievement awards you provide to an employee. Filemy2010taxreturnforfree See Publication 15-B. Filemy2010taxreturnforfree Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Filemy2010taxreturnforfree However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Filemy2010taxreturnforfree If the bonus is paid in property, see Property , later. Filemy2010taxreturnforfree Gifts of nominal value. Filemy2010taxreturnforfree    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Filemy2010taxreturnforfree Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Filemy2010taxreturnforfree For more information on this deduction limit, see Meals and lodging , later. Filemy2010taxreturnforfree Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Filemy2010taxreturnforfree Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Filemy2010taxreturnforfree For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Filemy2010taxreturnforfree Fringe Benefits A fringe benefit is a form of pay for the performance of services. Filemy2010taxreturnforfree You can generally deduct the cost of fringe benefits. Filemy2010taxreturnforfree You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Filemy2010taxreturnforfree You also may not owe employment taxes on the value of the fringe benefits. Filemy2010taxreturnforfree See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Filemy2010taxreturnforfree Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Filemy2010taxreturnforfree Certain fringe benefits are discussed next. Filemy2010taxreturnforfree See Publication 15-B for more details on these and other fringe benefits. Filemy2010taxreturnforfree Meals and lodging. Filemy2010taxreturnforfree   You can usually deduct the cost of furnishing meals and lodging to your employees. Filemy2010taxreturnforfree Deduct the cost in whatever category the expense falls. Filemy2010taxreturnforfree For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Filemy2010taxreturnforfree If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Filemy2010taxreturnforfree Deduction limit on meals. Filemy2010taxreturnforfree   You can generally deduct only 50% of the cost of furnishing meals to your employees. Filemy2010taxreturnforfree However, you can deduct the full cost of the following meals. Filemy2010taxreturnforfree Meals whose value you include in an employee's wages. Filemy2010taxreturnforfree Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Filemy2010taxreturnforfree This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Filemy2010taxreturnforfree Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Filemy2010taxreturnforfree Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Filemy2010taxreturnforfree Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Filemy2010taxreturnforfree This does not include meals you furnish on vessels primarily providing luxury water transportation. Filemy2010taxreturnforfree Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Filemy2010taxreturnforfree This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Filemy2010taxreturnforfree Employee benefit programs. Filemy2010taxreturnforfree   Employee benefit programs include the following. Filemy2010taxreturnforfree Accident and health plans. Filemy2010taxreturnforfree Adoption assistance. Filemy2010taxreturnforfree Cafeteria plans. Filemy2010taxreturnforfree Dependent care assistance. Filemy2010taxreturnforfree Education assistance. Filemy2010taxreturnforfree Life insurance coverage. Filemy2010taxreturnforfree Welfare benefit funds. Filemy2010taxreturnforfree   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Filemy2010taxreturnforfree For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Filemy2010taxreturnforfree ). Filemy2010taxreturnforfree Life insurance coverage. Filemy2010taxreturnforfree   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Filemy2010taxreturnforfree See Regulations section 1. Filemy2010taxreturnforfree 264-1 for more information. Filemy2010taxreturnforfree Welfare benefit funds. Filemy2010taxreturnforfree   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Filemy2010taxreturnforfree Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Filemy2010taxreturnforfree   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Filemy2010taxreturnforfree If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Filemy2010taxreturnforfree   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Filemy2010taxreturnforfree The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Filemy2010taxreturnforfree The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Filemy2010taxreturnforfree These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Filemy2010taxreturnforfree   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Filemy2010taxreturnforfree Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Filemy2010taxreturnforfree However, if the employee performs no services, treat the amount you advanced as a loan. Filemy2010taxreturnforfree If the employee does not repay the loan, treat it as income to the employee. Filemy2010taxreturnforfree Below-market interest rate loans. Filemy2010taxreturnforfree   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Filemy2010taxreturnforfree See Below-Market Loans in chapter 4. Filemy2010taxreturnforfree Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Filemy2010taxreturnforfree The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Filemy2010taxreturnforfree You can claim the deduction only for the tax year in which your employee includes the property's value in income. Filemy2010taxreturnforfree Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Filemy2010taxreturnforfree You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Filemy2010taxreturnforfree Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Filemy2010taxreturnforfree These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Filemy2010taxreturnforfree Restricted property. Filemy2010taxreturnforfree   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Filemy2010taxreturnforfree However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Filemy2010taxreturnforfree    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Filemy2010taxreturnforfree This means that the recipient is not likely to have to give up his or her rights in the property in the future. Filemy2010taxreturnforfree Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Filemy2010taxreturnforfree However, your deduction may be limited. Filemy2010taxreturnforfree If you make the payment under an accountable plan, deduct it in the category of the expense paid. Filemy2010taxreturnforfree For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Filemy2010taxreturnforfree If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Filemy2010taxreturnforfree See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Filemy2010taxreturnforfree Sick and Vacation Pay Sick pay. Filemy2010taxreturnforfree   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Filemy2010taxreturnforfree However, your deduction is limited to amounts not compensated by insurance or other means. Filemy2010taxreturnforfree Vacation pay. Filemy2010taxreturnforfree   Vacation pay is an employee benefit. Filemy2010taxreturnforfree It includes amounts paid for unused vacation leave. Filemy2010taxreturnforfree You can deduct vacation pay only in the tax year in which the employee actually receives it. Filemy2010taxreturnforfree This rule applies regardless of whether you use the cash or accrual method of accounting. Filemy2010taxreturnforfree Prev  Up  Next   Home   More Online Publications
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The Filemy2010taxreturnforfree

Filemy2010taxreturnforfree 22. Filemy2010taxreturnforfree   Taxes Table of Contents IntroductionIndian tribal government. Filemy2010taxreturnforfree Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. Filemy2010taxreturnforfree Real Estate TaxesReal estate taxes for prior years. Filemy2010taxreturnforfree Examples. Filemy2010taxreturnforfree Form 1099-S. Filemy2010taxreturnforfree Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). Filemy2010taxreturnforfree It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. Filemy2010taxreturnforfree This chapter covers the following topics. Filemy2010taxreturnforfree Income taxes (federal, state, local, and foreign). Filemy2010taxreturnforfree General sales taxes (state and local). Filemy2010taxreturnforfree Real estate taxes (state, local, and foreign). Filemy2010taxreturnforfree Personal property taxes (state and local). Filemy2010taxreturnforfree Taxes and fees you cannot deduct. Filemy2010taxreturnforfree Use Table 22-1 as a guide to determine which taxes you can deduct. Filemy2010taxreturnforfree The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. Filemy2010taxreturnforfree Business taxes. Filemy2010taxreturnforfree   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. Filemy2010taxreturnforfree For information on these taxes, see Publication 535, Business Expenses. Filemy2010taxreturnforfree State or local taxes. Filemy2010taxreturnforfree   These are taxes imposed by the 50 states, U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. Filemy2010taxreturnforfree Indian tribal government. Filemy2010taxreturnforfree   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. Filemy2010taxreturnforfree Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. Filemy2010taxreturnforfree General sales taxes. Filemy2010taxreturnforfree   These are taxes imposed at one rate on retail sales of a broad range of classes of items. Filemy2010taxreturnforfree Foreign taxes. Filemy2010taxreturnforfree   These are taxes imposed by a foreign country or any of its political subdivisions. Filemy2010taxreturnforfree Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. Filemy2010taxreturnforfree The tax must be imposed on you. Filemy2010taxreturnforfree You must pay the tax during your tax year. Filemy2010taxreturnforfree The tax must be imposed on you. Filemy2010taxreturnforfree   In general, you can deduct only taxes imposed on you. Filemy2010taxreturnforfree   Generally, you can deduct property taxes only if you are an owner of the property. Filemy2010taxreturnforfree If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. Filemy2010taxreturnforfree You must pay the tax during your tax year. Filemy2010taxreturnforfree   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. Filemy2010taxreturnforfree If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. Filemy2010taxreturnforfree If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. Filemy2010taxreturnforfree If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). Filemy2010taxreturnforfree See Publication 538, Accounting Periods and Methods, for details. Filemy2010taxreturnforfree    If you use an accrual method of accounting, see Publication 538 for more information. Filemy2010taxreturnforfree Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. Filemy2010taxreturnforfree State and Local Income Taxes You can deduct state and local income taxes. Filemy2010taxreturnforfree However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. Filemy2010taxreturnforfree See General Sales Taxes , later. Filemy2010taxreturnforfree Exception. Filemy2010taxreturnforfree    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. Filemy2010taxreturnforfree For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. Filemy2010taxreturnforfree What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. Filemy2010taxreturnforfree Withheld taxes. Filemy2010taxreturnforfree   You can deduct state and local income taxes withheld from your salary in the year they are withheld. Filemy2010taxreturnforfree Your Form(s) W-2 will show these amounts. Filemy2010taxreturnforfree Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. Filemy2010taxreturnforfree Estimated tax payments. Filemy2010taxreturnforfree   You can deduct estimated tax payments you made during the year to a state or local government. Filemy2010taxreturnforfree However, you must have a reasonable basis for making the estimated tax payments. Filemy2010taxreturnforfree Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. Filemy2010taxreturnforfree For example, you made an estimated state income tax payment. Filemy2010taxreturnforfree However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. Filemy2010taxreturnforfree You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. Filemy2010taxreturnforfree Refund applied to taxes. Filemy2010taxreturnforfree   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. Filemy2010taxreturnforfree    Do not reduce your deduction by either of the following items. Filemy2010taxreturnforfree Any state or local income tax refund (or credit) you expect to receive for 2013. Filemy2010taxreturnforfree Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. Filemy2010taxreturnforfree   However, part or all of this refund (or credit) may be taxable. Filemy2010taxreturnforfree See Refund (or credit) of state or local income taxes , later. Filemy2010taxreturnforfree Separate federal returns. Filemy2010taxreturnforfree   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. Filemy2010taxreturnforfree Joint state and local returns. Filemy2010taxreturnforfree   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. Filemy2010taxreturnforfree You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. Filemy2010taxreturnforfree However, you cannot deduct more than the amount you actually paid during the year. Filemy2010taxreturnforfree You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. Filemy2010taxreturnforfree If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. Filemy2010taxreturnforfree Joint federal return. Filemy2010taxreturnforfree   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. Filemy2010taxreturnforfree Contributions to state benefit funds. Filemy2010taxreturnforfree    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. Filemy2010taxreturnforfree For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. Filemy2010taxreturnforfree Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. Filemy2010taxreturnforfree Alaska Unemployment Compensation Fund. Filemy2010taxreturnforfree California Nonoccupational Disability Benefit Fund. Filemy2010taxreturnforfree New Jersey Nonoccupational Disability Benefit Fund. Filemy2010taxreturnforfree New Jersey Unemployment Compensation Fund. Filemy2010taxreturnforfree New York Nonoccupational Disability Benefit Fund. Filemy2010taxreturnforfree Pennsylvania Unemployment Compensation Fund. Filemy2010taxreturnforfree Rhode Island Temporary Disability Benefit Fund. Filemy2010taxreturnforfree Washington State Supplemental Workmen's Compensation Fund. Filemy2010taxreturnforfree    Employee contributions to private or voluntary disability plans are not deductible. Filemy2010taxreturnforfree Refund (or credit) of state or local income taxes. Filemy2010taxreturnforfree   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. Filemy2010taxreturnforfree This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. Filemy2010taxreturnforfree If you did not itemize your deductions in the previous year, do not include the refund in income. Filemy2010taxreturnforfree If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. Filemy2010taxreturnforfree For a discussion of how much to include, see Recoveries in chapter 12. Filemy2010taxreturnforfree Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree possession. Filemy2010taxreturnforfree However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree tax under the foreign earned income exclusion or the foreign housing exclusion. Filemy2010taxreturnforfree For information on these exclusions, see Publication 54, Tax Guide for U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree Citizens and Resident Aliens Abroad. Filemy2010taxreturnforfree For information on the foreign tax credit, see Publication 514. Filemy2010taxreturnforfree General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. Filemy2010taxreturnforfree You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. Filemy2010taxreturnforfree Actual expenses. Filemy2010taxreturnforfree   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. Filemy2010taxreturnforfree However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Filemy2010taxreturnforfree If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Filemy2010taxreturnforfree If you use the actual expenses method, you must have receipts to show the general sales taxes paid. Filemy2010taxreturnforfree Do not include sales taxes paid on items used in your trade or business. Filemy2010taxreturnforfree Motor vehicles. Filemy2010taxreturnforfree   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Filemy2010taxreturnforfree This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. Filemy2010taxreturnforfree Optional sales tax tables. Filemy2010taxreturnforfree   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). Filemy2010taxreturnforfree You may also be able to add the state and local general sales taxes paid on certain specified items. Filemy2010taxreturnforfree   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. Filemy2010taxreturnforfree Your income is your adjusted gross income plus any nontaxable items such as the following. Filemy2010taxreturnforfree Tax-exempt interest. Filemy2010taxreturnforfree Veterans' benefits. Filemy2010taxreturnforfree Nontaxable combat pay. Filemy2010taxreturnforfree Workers' compensation. Filemy2010taxreturnforfree Nontaxable part of social security and railroad retirement benefits. Filemy2010taxreturnforfree Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. Filemy2010taxreturnforfree Public assistance payments. Filemy2010taxreturnforfree If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. Filemy2010taxreturnforfree See the Instructions for Schedule A (Form 1040), line 5, for details. Filemy2010taxreturnforfree Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. Filemy2010taxreturnforfree You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. Filemy2010taxreturnforfree Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Filemy2010taxreturnforfree They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. Filemy2010taxreturnforfree For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. Filemy2010taxreturnforfree Tenant-shareholders in a cooperative housing corporation. Filemy2010taxreturnforfree   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. Filemy2010taxreturnforfree The corporation should provide you with a statement showing your share of the taxes. Filemy2010taxreturnforfree For more information, see Special Rules for Cooperatives in Publication 530. Filemy2010taxreturnforfree Division of real estate taxes between buyers and sellers. Filemy2010taxreturnforfree   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. Filemy2010taxreturnforfree   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. Filemy2010taxreturnforfree The seller is treated as paying the taxes up to, but not including, the date of sale. Filemy2010taxreturnforfree The buyer is treated as paying the taxes beginning with the date of sale. Filemy2010taxreturnforfree This applies regardless of the lien dates under local law. Filemy2010taxreturnforfree Generally, this information is included on the settlement statement provided at the closing. Filemy2010taxreturnforfree    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. Filemy2010taxreturnforfree This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. Filemy2010taxreturnforfree However, you must also include the amount of that tax in the selling price of the property. Filemy2010taxreturnforfree The buyer must include the same amount in his or her cost of the property. Filemy2010taxreturnforfree   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. Filemy2010taxreturnforfree Worksheet 22-1. Filemy2010taxreturnforfree Figuring Your Real Estate Tax Deduction 1. Filemy2010taxreturnforfree Enter the total real estate taxes for the real property tax year   2. Filemy2010taxreturnforfree Enter the number of days in the real property tax year that you owned the property   3. Filemy2010taxreturnforfree Divide line 2 by 365 (for leap years, divide line 2 by 366) . Filemy2010taxreturnforfree 4. Filemy2010taxreturnforfree Multiply line 1 by line 3. Filemy2010taxreturnforfree This is your deduction. Filemy2010taxreturnforfree Enter it on Schedule A (Form 1040), line 6   Note. Filemy2010taxreturnforfree Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. Filemy2010taxreturnforfree Your total deduction is the sum of the line 4 amounts for all of the properties. Filemy2010taxreturnforfree Real estate taxes for prior years. Filemy2010taxreturnforfree   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. Filemy2010taxreturnforfree Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. Filemy2010taxreturnforfree The buyer must add them to the cost of the property. Filemy2010taxreturnforfree The seller can deduct these taxes paid by the buyer. Filemy2010taxreturnforfree However, the seller must include them in the selling price. Filemy2010taxreturnforfree Examples. Filemy2010taxreturnforfree   The following examples illustrate how real estate taxes are divided between buyer and seller. Filemy2010taxreturnforfree Example 1. Filemy2010taxreturnforfree Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. Filemy2010taxreturnforfree The tax on their old home, sold on May 7, was $620. Filemy2010taxreturnforfree The tax on their new home, bought on May 3, was $732. Filemy2010taxreturnforfree Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. Filemy2010taxreturnforfree On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. Filemy2010taxreturnforfree Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). Filemy2010taxreturnforfree They figure their deduction for taxes on their old home as follows. Filemy2010taxreturnforfree Worksheet 22-1. Filemy2010taxreturnforfree Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. Filemy2010taxreturnforfree Enter the total real estate taxes for the real property tax year $620 2. Filemy2010taxreturnforfree Enter the number of days in the real property tax year that you owned the property 126 3. Filemy2010taxreturnforfree Divide line 2 by 365 (for leap years, divide line 2 by 366) . Filemy2010taxreturnforfree 3452 4. Filemy2010taxreturnforfree Multiply line 1 by line 3. Filemy2010taxreturnforfree This is your deduction. Filemy2010taxreturnforfree Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. Filemy2010taxreturnforfree (The buyers add the $214 to their cost of the home. Filemy2010taxreturnforfree ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). Filemy2010taxreturnforfree They figure their deduction for taxes on their new home as follows. Filemy2010taxreturnforfree Worksheet 22-1. Filemy2010taxreturnforfree Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Filemy2010taxreturnforfree Enter the total real estate taxes for the real property tax year $732 2. Filemy2010taxreturnforfree Enter the number of days in the real property tax year that you owned the property 243 3. Filemy2010taxreturnforfree Divide line 2 by 365 (for leap years, divide line 2 by 366) . Filemy2010taxreturnforfree 6658 4. Filemy2010taxreturnforfree Multiply line 1 by line 3. Filemy2010taxreturnforfree This is your deduction. Filemy2010taxreturnforfree Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. Filemy2010taxreturnforfree (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. Filemy2010taxreturnforfree ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. Filemy2010taxreturnforfree They will enter this amount on Schedule A (Form 1040), line 6. Filemy2010taxreturnforfree Example 2. Filemy2010taxreturnforfree George and Helen Brown bought a new home on May 3, 2013. Filemy2010taxreturnforfree Their real property tax year for the new home is the calendar year. Filemy2010taxreturnforfree Real estate taxes for 2012 were assessed in their state on January 1, 2013. Filemy2010taxreturnforfree The taxes became due on May 31, 2013, and October 31, 2013. Filemy2010taxreturnforfree The Browns agreed to pay all taxes due after the date of purchase. Filemy2010taxreturnforfree Real estate taxes for 2012 were $680. Filemy2010taxreturnforfree They paid $340 on May 31, 2013, and $340 on October 31, 2013. Filemy2010taxreturnforfree These taxes were for the 2012 real property tax year. Filemy2010taxreturnforfree The Browns cannot deduct them since they did not own the property until 2013. Filemy2010taxreturnforfree Instead, they must add $680 to the cost of their new home. Filemy2010taxreturnforfree In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. Filemy2010taxreturnforfree The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). Filemy2010taxreturnforfree They will figure their 2014 deduction for taxes as follows. Filemy2010taxreturnforfree Worksheet 22-1. Filemy2010taxreturnforfree Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Filemy2010taxreturnforfree Enter the total real estate taxes for the real property tax year $752 2. Filemy2010taxreturnforfree Enter the number of days in the real property tax year that you owned the property 243 3. Filemy2010taxreturnforfree Divide line 2 by 365 (for leap years, divide line 2 by 366) . Filemy2010taxreturnforfree 6658 4. Filemy2010taxreturnforfree Multiply line 1 by line 3. Filemy2010taxreturnforfree This is your deduction. Filemy2010taxreturnforfree Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. Filemy2010taxreturnforfree Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. Filemy2010taxreturnforfree This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. Filemy2010taxreturnforfree The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. Filemy2010taxreturnforfree The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. Filemy2010taxreturnforfree Form 1099-S. Filemy2010taxreturnforfree   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. Filemy2010taxreturnforfree Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. Filemy2010taxreturnforfree The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. Filemy2010taxreturnforfree   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. Filemy2010taxreturnforfree The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. Filemy2010taxreturnforfree See Refund (or rebate) , later. Filemy2010taxreturnforfree Taxes placed in escrow. Filemy2010taxreturnforfree   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. Filemy2010taxreturnforfree You can deduct only the real estate tax that the third party actually paid to the taxing authority. Filemy2010taxreturnforfree If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. Filemy2010taxreturnforfree Tenants by the entirety. Filemy2010taxreturnforfree   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. Filemy2010taxreturnforfree Divorced individuals. Filemy2010taxreturnforfree   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. Filemy2010taxreturnforfree See Taxes and insurance in chapter 18 for more information. Filemy2010taxreturnforfree Ministers' and military housing allowances. Filemy2010taxreturnforfree   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. Filemy2010taxreturnforfree Refund (or rebate). Filemy2010taxreturnforfree   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. Filemy2010taxreturnforfree If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. Filemy2010taxreturnforfree However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. Filemy2010taxreturnforfree For more information, see Recoveries in chapter 12. Filemy2010taxreturnforfree Table 22-1. Filemy2010taxreturnforfree Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. Filemy2010taxreturnforfree Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). Filemy2010taxreturnforfree     Fines and penalties. Filemy2010taxreturnforfree Income Taxes State and local income taxes. Filemy2010taxreturnforfree Federal income taxes. Filemy2010taxreturnforfree   Foreign income taxes. Filemy2010taxreturnforfree     Employee contributions to state funds listed under Contributions to state benefit funds . Filemy2010taxreturnforfree Employee contributions to private or voluntary disability plans. Filemy2010taxreturnforfree     State and local general sales taxes if you choose to deduct state and local income taxes. Filemy2010taxreturnforfree General Sales Taxes State and local general sales taxes, including compensating use taxes. Filemy2010taxreturnforfree State and local income taxes if you choose to deduct state and local general sales taxes. Filemy2010taxreturnforfree Other Taxes Taxes that are expenses of your trade or business. Filemy2010taxreturnforfree Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. Filemy2010taxreturnforfree   Taxes on property producing rent or royalty income. Filemy2010taxreturnforfree Per capita taxes. Filemy2010taxreturnforfree   Occupational taxes. Filemy2010taxreturnforfree See chapter 28. Filemy2010taxreturnforfree     One-half of self-employment tax paid. Filemy2010taxreturnforfree   Personal Property Taxes State and local personal property taxes. Filemy2010taxreturnforfree Customs duties that are not expenses of your trade or business or of producing income. Filemy2010taxreturnforfree Real Estate Taxes State and local real estate taxes. Filemy2010taxreturnforfree Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). Filemy2010taxreturnforfree   Foreign real estate taxes. Filemy2010taxreturnforfree Taxes for local benefits (with exceptions). Filemy2010taxreturnforfree See Real Estate-Related Items You Cannot Deduct . Filemy2010taxreturnforfree   Tenant's share of real estate taxes paid by  cooperative housing corporation. Filemy2010taxreturnforfree Trash and garbage pickup fees (with exceptions). Filemy2010taxreturnforfree See Real Estate-Related Items You Cannot Deduct . Filemy2010taxreturnforfree     Rent increase due to higher real estate taxes. Filemy2010taxreturnforfree     Homeowners' association charges. Filemy2010taxreturnforfree Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. Filemy2010taxreturnforfree Taxes for local benefits. Filemy2010taxreturnforfree Itemized charges for services (such as trash and garbage pickup fees). Filemy2010taxreturnforfree Transfer taxes (or stamp taxes). Filemy2010taxreturnforfree Rent increases due to higher real estate taxes. Filemy2010taxreturnforfree Homeowners' association charges. Filemy2010taxreturnforfree Taxes for local benefits. Filemy2010taxreturnforfree   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. Filemy2010taxreturnforfree These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. Filemy2010taxreturnforfree You should increase the basis of your property by the amount of the assessment. Filemy2010taxreturnforfree   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. Filemy2010taxreturnforfree If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. Filemy2010taxreturnforfree If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. Filemy2010taxreturnforfree    Taxes for local benefits may be included in your real estate tax bill. Filemy2010taxreturnforfree If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Filemy2010taxreturnforfree You should use the rules above to determine if the local benefit tax is deductible. Filemy2010taxreturnforfree Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Filemy2010taxreturnforfree Itemized charges for services. Filemy2010taxreturnforfree    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. Filemy2010taxreturnforfree For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). Filemy2010taxreturnforfree    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. Filemy2010taxreturnforfree If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Filemy2010taxreturnforfree Exception. Filemy2010taxreturnforfree   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. Filemy2010taxreturnforfree Transfer taxes (or stamp taxes). Filemy2010taxreturnforfree   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. Filemy2010taxreturnforfree If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. Filemy2010taxreturnforfree If paid by the buyer, they are included in the cost basis of the property. Filemy2010taxreturnforfree Rent increase due to higher real estate taxes. Filemy2010taxreturnforfree   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. Filemy2010taxreturnforfree Homeowners' association charges. Filemy2010taxreturnforfree   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. Filemy2010taxreturnforfree Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. Filemy2010taxreturnforfree A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. Filemy2010taxreturnforfree For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. Filemy2010taxreturnforfree If the tax is partly based on value and partly based on other criteria, it may qualify in part. Filemy2010taxreturnforfree Example. Filemy2010taxreturnforfree Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. Filemy2010taxreturnforfree You paid $32 based on the value ($1,500) and weight (3,400 lbs. Filemy2010taxreturnforfree ) of your car. Filemy2010taxreturnforfree You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. Filemy2010taxreturnforfree The remaining $17 ($. Filemy2010taxreturnforfree 50 × 34), based on the weight, is not deductible. Filemy2010taxreturnforfree Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. Filemy2010taxreturnforfree Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. Filemy2010taxreturnforfree See Table 22-1. Filemy2010taxreturnforfree Taxes and fees that are generally not deductible include the following items. Filemy2010taxreturnforfree Employment taxes. Filemy2010taxreturnforfree This includes social security, Medicare, and railroad retirement taxes withheld from your pay. Filemy2010taxreturnforfree However, one-half of self-employment tax you pay is deductible. Filemy2010taxreturnforfree In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. Filemy2010taxreturnforfree For more information, see chapters 21 and 32. Filemy2010taxreturnforfree Estate, inheritance, legacy, or succession taxes. Filemy2010taxreturnforfree However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. Filemy2010taxreturnforfree In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. Filemy2010taxreturnforfree For more information, see Publication 559, Survivors, Executors, and Administrators. Filemy2010taxreturnforfree Federal income taxes. Filemy2010taxreturnforfree This includes income taxes withheld from your pay. Filemy2010taxreturnforfree Fines and penalties. Filemy2010taxreturnforfree You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. Filemy2010taxreturnforfree Gift taxes. Filemy2010taxreturnforfree License fees. Filemy2010taxreturnforfree You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). Filemy2010taxreturnforfree Per capita taxes. Filemy2010taxreturnforfree You cannot deduct state or local per capita taxes. Filemy2010taxreturnforfree Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. Filemy2010taxreturnforfree For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. Filemy2010taxreturnforfree Where To Deduct You deduct taxes on the following schedules. Filemy2010taxreturnforfree State and local income taxes. Filemy2010taxreturnforfree    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. Filemy2010taxreturnforfree Check box a on line 5. Filemy2010taxreturnforfree General sales taxes. Filemy2010taxreturnforfree   Sales taxes are deducted on Schedule A (Form 1040), line 5. Filemy2010taxreturnforfree You must check box b on line 5. Filemy2010taxreturnforfree If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. Filemy2010taxreturnforfree Foreign income taxes. Filemy2010taxreturnforfree   Generally, income taxes you pay to a foreign country or U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree income tax on Form 1040, line 47. Filemy2010taxreturnforfree To claim the credit, you may have to complete and attach Form 1116. Filemy2010taxreturnforfree For more information, see chapter 37, the Form 1040 instructions, or Publication 514. Filemy2010taxreturnforfree Real estate taxes and personal property taxes. Filemy2010taxreturnforfree    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). Filemy2010taxreturnforfree Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). Filemy2010taxreturnforfree Self-employment tax. Filemy2010taxreturnforfree    Deduct one-half of your self-employment tax on Form 1040, line 27. Filemy2010taxreturnforfree Other taxes. Filemy2010taxreturnforfree    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. Filemy2010taxreturnforfree Prev  Up  Next   Home   More Online Publications