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Filing Past Tax Returns

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Filing Past Tax Returns

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

Alternative Dispute Resolution (ADR)

Mediation is an informal, confidential, and flexible dispute resolution process in which an Appeals Officer trained in mediation techniques serves as an impartial third party facilitating negotiations between the disputing parties.


The Appeals mediators help resolve disputes by identifying the core issues, possible obstacles to settlement, and working with the parties to develop resolution strategies. The Appeals mediator has no power to render a decision or to force either party to accept a settlement. With our Fast Track Settlement program, however, the Appeals mediator may suggest settlement proposals.


Our various mediation programs are designed to serve different types of taxpayers at specific stages of the IRS examination or collection process.

 

If you’re an experienced tax practitioner and know which mediation program you’re interested in, the links in the table below will take you to pages with information, including the application process. If this is all new to you and you have a disagreement with IRS but are not sure whether mediation is right for you, please check out the Appeals Mediation Programs Online Self-Help Tool, which is designed to:

  • Help you understand when to discuss mediation with the IRS person assigned to your case
  • Help you navigate to the mediation program that best fits your needs
  • Explain each program
  • Provide you with the steps, forms and information needed to apply for each program
Type of Taxpayer Stage of IRS Process
Pre-Filing Examination Collection Appeals
Large Business and International

Compliance Assurance Process

Fast Track Settlement
 

Early Referral

 

Post Appeals Mediation

Small Business/Self-Employed  

Fast Track Settlement
 

Early Referral

Fast Track Mediation

Tax Exempt/Government Entities  

Fast Track Settlement
 

Early Referral

 

 

Page Last Reviewed or Updated: 10-Jan-2014

The Filing Past Tax Returns

Filing past tax returns 11. Filing past tax returns   Patient-Centered Outcomes Research Fee Table of Contents The patient-centered outcomes research fee is imposed on issuers of specified health insurance policies (section 4375) and plan sponsors of applicable self-insured health plans (section 4376) for policy and plan years ending on or after October 1, 2012. Filing past tax returns Generally, references to taxes on Form 720 include this fee. Filing past tax returns Specified health insurance policies. Filing past tax returns   For issuers of specified health insurance policies, the fee for a policy year ending before October 1, 2013, is $1. Filing past tax returns 00, multiplied by the average number of lives covered under the policy for that policy year. Filing past tax returns Generally, issuers of specified health insurance polices must use one of the following four alternative methods to determine the average number of lives covered under a policy for the policy year. Filing past tax returns The actual count method. Filing past tax returns For policy years that end on or after October 1, 2012, issuers using the actual count method may begin counting lives covered under a policy as of May 14, 2012, rather than the first day of the policy year, and divide by the appropriate number of days remaining in the policy year. Filing past tax returns The snapshot method. Filing past tax returns For policy years that end on or after October 1, 2012, but that began before May 14, 2012, issuers using the snapshot method may use counts from quarters beginning on or after May 14, 2012, to determine the average number of lives covered under the policy. Filing past tax returns The member months method. Filing past tax returns And, 4. Filing past tax returns The state form method. Filing past tax returns The member months data and the data reported on state forms are based on the calendar year. Filing past tax returns To adjust for 2012, issuers will use a pro rata approach for calculating the average number of lives covered using the member months method or the state form method for 2012. Filing past tax returns For example, issuers using the member months number for 2012 will divide the member months number by 12 and multiply the resulting number by one quarter to arrive at the average number of lives covered for October through December 2012. Filing past tax returns Applicable self-insured health plans. Filing past tax returns   For plan sponsors of applicable self-insured health plans, the fee for a plan year ending on or after October 1, 2012, and ending before October 1, 2013 is $1. Filing past tax returns 00, multiplied by the average number of lives covered under the plan for that plan year. Filing past tax returns Generally, plan sponsors of applicable self-insured health plans must use one of the following three alternative methods to determine the average number of lives covered under a plan for the plan year. Filing past tax returns Actual count method. Filing past tax returns Snapshot method. Filing past tax returns Form 5500 method. Filing past tax returns However, for plan years beginning before July 11, 2012, and ending on or after October 1, 2012, plan sponsors may determine the average number of lives covered under the plan for the plan year using any reasonable method. Filing past tax returns Reporting and paying the fee. Filing past tax returns   File Form 720 annually to report and pay the fee on the second quarter Form 720, no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. Filing past tax returns If you file Form 720 only to report the fee, do not file Form 720 for the 1st, 3rd, or 4th quarters of the year. Filing past tax returns If you file Form 720 to report quarterly excise tax liability for the 1st, 3rd, or 4th quarter of the year (for example, filers reporting the foreign insurance tax (IRS No. Filing past tax returns 30)), do not make an entry on the line for IRS No. Filing past tax returns 133 on those filings. Filing past tax returns   Deposits are not required for this fee, so issuers and plan sponsors are not required to pay the fee using Electronic Federal Tax Payment System (EFTPS). Filing past tax returns   However, if the fee is paid using EFTPS, the payment should be applied to the second quarter. Filing past tax returns See Electronic deposit requirement under How To Make Deposits in chapter 13, later. Filing past tax returns More information. Filing past tax returns   For more information, including methods for calculating the average number of lives covered, see sections 4375, 4376, and 4377; also see T. Filing past tax returns D. Filing past tax returns 9602, which is on page 746 of I. Filing past tax returns R. Filing past tax returns B. Filing past tax returns 2012-52 at www. Filing past tax returns irs. Filing past tax returns gov/pub/irs-irbs/irb12-52. Filing past tax returns pdf. Filing past tax returns Prev  Up  Next   Home   More Online Publications