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Free 2013 federal & state tax preparation on line 2. Free 2013 federal & state tax preparation on line   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Free 2013 federal & state tax preparation on line You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Free 2013 federal & state tax preparation on line Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Free 2013 federal & state tax preparation on line You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Free 2013 federal & state tax preparation on line You can deduct depreciation only on the part of your property used for rental purposes. Free 2013 federal & state tax preparation on line Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Free 2013 federal & state tax preparation on line You may have to use Form 4562 to figure and report your depreciation. Free 2013 federal & state tax preparation on line See Which Forms To Use in chapter 3. Free 2013 federal & state tax preparation on line Also see Publication 946. Free 2013 federal & state tax preparation on line Section 179 deduction. Free 2013 federal & state tax preparation on line   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Free 2013 federal & state tax preparation on line This deduction is not allowed for property used in connection with residential rental property. Free 2013 federal & state tax preparation on line See chapter 2 of Publication 946. Free 2013 federal & state tax preparation on line Alternative minimum tax (AMT). Free 2013 federal & state tax preparation on line   If you use accelerated depreciation, you may be subject to the AMT. Free 2013 federal & state tax preparation on line Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Free 2013 federal & state tax preparation on line   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Free 2013 federal & state tax preparation on line However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Free 2013 federal & state tax preparation on line   To find out if you are subject to the AMT, see the Instructions for Form 6251. Free 2013 federal & state tax preparation on line The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Free 2013 federal & state tax preparation on line What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Free 2013 federal & state tax preparation on line You own the property. Free 2013 federal & state tax preparation on line You use the property in your business or income-producing activity (such as rental property). Free 2013 federal & state tax preparation on line The property has a determinable useful life. Free 2013 federal & state tax preparation on line The property is expected to last more than one year. Free 2013 federal & state tax preparation on line Property you own. Free 2013 federal & state tax preparation on line   To claim depreciation, you usually must be the owner of the property. Free 2013 federal & state tax preparation on line You are considered as owning property even if it is subject to a debt. Free 2013 federal & state tax preparation on line Rented property. Free 2013 federal & state tax preparation on line   Generally, if you pay rent for property, you cannot depreciate that property. Free 2013 federal & state tax preparation on line Usually, only the owner can depreciate it. Free 2013 federal & state tax preparation on line However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Free 2013 federal & state tax preparation on line See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Free 2013 federal & state tax preparation on line Cooperative apartments. Free 2013 federal & state tax preparation on line   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Free 2013 federal & state tax preparation on line See chapter 4, Special Situations. Free 2013 federal & state tax preparation on line Property having a determinable useful life. Free 2013 federal & state tax preparation on line   To be depreciable, your property must have a determinable useful life. Free 2013 federal & state tax preparation on line This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Free 2013 federal & state tax preparation on line What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Free 2013 federal & state tax preparation on line This includes land and certain excepted property. Free 2013 federal & state tax preparation on line Land. Free 2013 federal & state tax preparation on line   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Free 2013 federal & state tax preparation on line But if it does, the loss is accounted for upon disposition. Free 2013 federal & state tax preparation on line The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Free 2013 federal & state tax preparation on line   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Free 2013 federal & state tax preparation on line These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Free 2013 federal & state tax preparation on line Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Free 2013 federal & state tax preparation on line If you replace the house, you would have to destroy the bushes and trees right next to it. Free 2013 federal & state tax preparation on line These bushes and trees are closely associated with the house, so they have a determinable useful life. Free 2013 federal & state tax preparation on line Therefore, you can depreciate them. Free 2013 federal & state tax preparation on line Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Free 2013 federal & state tax preparation on line Excepted property. Free 2013 federal & state tax preparation on line   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Free 2013 federal & state tax preparation on line Property placed in service and disposed of (or taken out of business use) in the same year. Free 2013 federal & state tax preparation on line Equipment used to build capital improvements. Free 2013 federal & state tax preparation on line You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Free 2013 federal & state tax preparation on line For more information, see chapter 1 of Publication 946. Free 2013 federal & state tax preparation on line When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Free 2013 federal & state tax preparation on line You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Free 2013 federal & state tax preparation on line Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Free 2013 federal & state tax preparation on line Even if you are not using the property, it is in service when it is ready and available for its specific use. Free 2013 federal & state tax preparation on line Example 1. Free 2013 federal & state tax preparation on line On November 22 of last year, you purchased a dishwasher for your rental property. Free 2013 federal & state tax preparation on line The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Free 2013 federal & state tax preparation on line Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Free 2013 federal & state tax preparation on line If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Free 2013 federal & state tax preparation on line Example 2. Free 2013 federal & state tax preparation on line On April 6, you purchased a house to use as residential rental property. Free 2013 federal & state tax preparation on line You made extensive repairs to the house and had it ready for rent on July 5. Free 2013 federal & state tax preparation on line You began to advertise the house for rent in July and actually rented it beginning September 1. Free 2013 federal & state tax preparation on line The house is considered placed in service in July when it was ready and available for rent. Free 2013 federal & state tax preparation on line You can begin to depreciate the house in July. Free 2013 federal & state tax preparation on line Example 3. Free 2013 federal & state tax preparation on line You moved from your home in July. Free 2013 federal & state tax preparation on line During August and September you made several repairs to the house. Free 2013 federal & state tax preparation on line On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Free 2013 federal & state tax preparation on line The property is considered placed in service on October 1, the date when it was available for rent. Free 2013 federal & state tax preparation on line Conversion to business use. Free 2013 federal & state tax preparation on line   If you place property in service in a personal activity, you cannot claim depreciation. Free 2013 federal & state tax preparation on line However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Free 2013 federal & state tax preparation on line You place the property in service for business or income-producing use on the date of the change. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You bought a house and used it as your personal home several years before you converted it to rental property. Free 2013 federal & state tax preparation on line Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Free 2013 federal & state tax preparation on line You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Free 2013 federal & state tax preparation on line Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Free 2013 federal & state tax preparation on line For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Free 2013 federal & state tax preparation on line Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Free 2013 federal & state tax preparation on line For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Free 2013 federal & state tax preparation on line See Basis of Depreciable Property , later. Free 2013 federal & state tax preparation on line Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Free 2013 federal & state tax preparation on line You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Free 2013 federal & state tax preparation on line You sell or exchange the property. Free 2013 federal & state tax preparation on line You convert the property to personal use. Free 2013 federal & state tax preparation on line You abandon the property. Free 2013 federal & state tax preparation on line The property is destroyed. Free 2013 federal & state tax preparation on line Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Free 2013 federal & state tax preparation on line If you placed rental property in service before 1987, you are using one of the following methods. Free 2013 federal & state tax preparation on line ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Free 2013 federal & state tax preparation on line Straight line or declining balance method over the useful life of property placed in service before 1981. Free 2013 federal & state tax preparation on line See MACRS Depreciation , later, for more information. Free 2013 federal & state tax preparation on line Rental property placed in service before 2013. Free 2013 federal & state tax preparation on line   Continue to use the same method of figuring depreciation that you used in the past. Free 2013 federal & state tax preparation on line Use of real property changed. Free 2013 federal & state tax preparation on line   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Free 2013 federal & state tax preparation on line This includes your residence that you changed to rental use. Free 2013 federal & state tax preparation on line See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Free 2013 federal & state tax preparation on line Improvements made after 1986. Free 2013 federal & state tax preparation on line   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Free 2013 federal & state tax preparation on line As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Free 2013 federal & state tax preparation on line For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Free 2013 federal & state tax preparation on line This publication discusses MACRS depreciation only. Free 2013 federal & state tax preparation on line If you need information about depreciating property placed in service before 1987, see Publication 534. Free 2013 federal & state tax preparation on line Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Free 2013 federal & state tax preparation on line This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Free 2013 federal & state tax preparation on line If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Free 2013 federal & state tax preparation on line Basis and adjusted basis are explained in the following discussions. Free 2013 federal & state tax preparation on line If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Free 2013 federal & state tax preparation on line See Basis of Property Changed to Rental Use in chapter 4. Free 2013 federal & state tax preparation on line Cost Basis The basis of property you buy is usually its cost. Free 2013 federal & state tax preparation on line The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Free 2013 federal & state tax preparation on line Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Free 2013 federal & state tax preparation on line Exception. Free 2013 federal & state tax preparation on line   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Free 2013 federal & state tax preparation on line Such taxes were deductible before 1987 and after 2003. Free 2013 federal & state tax preparation on line Loans with low or no interest. Free 2013 federal & state tax preparation on line   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Free 2013 federal & state tax preparation on line See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free 2013 federal & state tax preparation on line Real property. Free 2013 federal & state tax preparation on line   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Free 2013 federal & state tax preparation on line Real estate taxes. Free 2013 federal & state tax preparation on line   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Free 2013 federal & state tax preparation on line You cannot deduct them as taxes paid. Free 2013 federal & state tax preparation on line   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Free 2013 federal & state tax preparation on line Do not include that amount in your basis in the property. Free 2013 federal & state tax preparation on line Settlement fees and other costs. Free 2013 federal & state tax preparation on line   The following settlement fees and closing costs for buying the property are part of your basis in the property. Free 2013 federal & state tax preparation on line Abstract fees. Free 2013 federal & state tax preparation on line Charges for installing utility services. Free 2013 federal & state tax preparation on line Legal fees. Free 2013 federal & state tax preparation on line Recording fees. Free 2013 federal & state tax preparation on line Surveys. Free 2013 federal & state tax preparation on line Transfer taxes. Free 2013 federal & state tax preparation on line Title insurance. Free 2013 federal & state tax preparation on line Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Free 2013 federal & state tax preparation on line   The following are settlement fees and closing costs you cannot include in your basis in the property. Free 2013 federal & state tax preparation on line Fire insurance premiums. Free 2013 federal & state tax preparation on line Rent or other charges relating to occupancy of the property before closing. Free 2013 federal & state tax preparation on line Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Free 2013 federal & state tax preparation on line   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free 2013 federal & state tax preparation on line Assumption of a mortgage. Free 2013 federal & state tax preparation on line   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Free 2013 federal & state tax preparation on line Your basis is $300,000. Free 2013 federal & state tax preparation on line Separating cost of land and buildings. Free 2013 federal & state tax preparation on line   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Free 2013 federal & state tax preparation on line The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Free 2013 federal & state tax preparation on line   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You buy a house and land for $200,000. Free 2013 federal & state tax preparation on line The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Free 2013 federal & state tax preparation on line The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Free 2013 federal & state tax preparation on line You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Free 2013 federal & state tax preparation on line Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Free 2013 federal & state tax preparation on line Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Free 2013 federal & state tax preparation on line If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Free 2013 federal & state tax preparation on line Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Free 2013 federal & state tax preparation on line The result of these adjustments to the basis is the adjusted basis. Free 2013 federal & state tax preparation on line Increases to basis. Free 2013 federal & state tax preparation on line   You must increase the basis of any property by the cost of all items properly added to a capital account. Free 2013 federal & state tax preparation on line These include the following. Free 2013 federal & state tax preparation on line The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Free 2013 federal & state tax preparation on line Amounts spent after a casualty to restore the damaged property. Free 2013 federal & state tax preparation on line The cost of extending utility service lines to the property. Free 2013 federal & state tax preparation on line Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Free 2013 federal & state tax preparation on line Additions or improvements. Free 2013 federal & state tax preparation on line   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Free 2013 federal & state tax preparation on line This includes all direct costs, such as material and labor, but does not include your own labor. Free 2013 federal & state tax preparation on line It also includes all expenses related to the addition or improvement. Free 2013 federal & state tax preparation on line   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Free 2013 federal & state tax preparation on line Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Free 2013 federal & state tax preparation on line   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Free 2013 federal & state tax preparation on line For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Free 2013 federal & state tax preparation on line    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Free 2013 federal & state tax preparation on line However, see What Rental Property Cannot Be Depreciated, earlier. Free 2013 federal & state tax preparation on line Assessments for local improvements. Free 2013 federal & state tax preparation on line   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Free 2013 federal & state tax preparation on line For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Free 2013 federal & state tax preparation on line Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Free 2013 federal & state tax preparation on line You cannot deduct these items as taxes or depreciate them. Free 2013 federal & state tax preparation on line    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Free 2013 federal & state tax preparation on line Do not add them to your basis in the property. Free 2013 federal & state tax preparation on line Deducting vs. Free 2013 federal & state tax preparation on line capitalizing costs. Free 2013 federal & state tax preparation on line   Do not add to your basis costs you can deduct as current expenses. Free 2013 federal & state tax preparation on line However, there are certain costs you can choose either to deduct or to capitalize. Free 2013 federal & state tax preparation on line If you capitalize these costs, include them in your basis. Free 2013 federal & state tax preparation on line If you deduct them, do not include them in your basis. Free 2013 federal & state tax preparation on line   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Free 2013 federal & state tax preparation on line   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Free 2013 federal & state tax preparation on line Decreases to basis. Free 2013 federal & state tax preparation on line   You must decrease the basis of your property by any items that represent a return of your cost. Free 2013 federal & state tax preparation on line These include the following. Free 2013 federal & state tax preparation on line Insurance or other payment you receive as the result of a casualty or theft loss. Free 2013 federal & state tax preparation on line Casualty loss not covered by insurance for which you took a deduction. Free 2013 federal & state tax preparation on line Amount(s) you receive for granting an easement. Free 2013 federal & state tax preparation on line Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Free 2013 federal & state tax preparation on line Exclusion from income of subsidies for energy conservation measures. Free 2013 federal & state tax preparation on line Special depreciation allowance claimed on qualified property. Free 2013 federal & state tax preparation on line Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Free 2013 federal & state tax preparation on line If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Free 2013 federal & state tax preparation on line   If your rental property was previously used as your main home, you must also decrease the basis by the following. Free 2013 federal & state tax preparation on line Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Free 2013 federal & state tax preparation on line District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Free 2013 federal & state tax preparation on line Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Free 2013 federal & state tax preparation on line Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Free 2013 federal & state tax preparation on line This allowance is figured before you figure your regular depreciation deduction. Free 2013 federal & state tax preparation on line See Publication 946, chapter 3, for details. Free 2013 federal & state tax preparation on line Also see the Instructions for Form 4562, Line 14. Free 2013 federal & state tax preparation on line If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Free 2013 federal & state tax preparation on line The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Free 2013 federal & state tax preparation on line MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Free 2013 federal & state tax preparation on line This section explains how to determine which MACRS depreciation system applies to your property. Free 2013 federal & state tax preparation on line It also discusses other information you need to know before you can figure depreciation under MACRS. Free 2013 federal & state tax preparation on line This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Free 2013 federal & state tax preparation on line Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Free 2013 federal & state tax preparation on line You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Free 2013 federal & state tax preparation on line Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Free 2013 federal & state tax preparation on line In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Free 2013 federal & state tax preparation on line However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Free 2013 federal & state tax preparation on line For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Free 2013 federal & state tax preparation on line Electing ADS If you choose, you can use the ADS method for most property. Free 2013 federal & state tax preparation on line Under ADS, you use the straight line method of depreciation. Free 2013 federal & state tax preparation on line The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Free 2013 federal & state tax preparation on line However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Free 2013 federal & state tax preparation on line If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Free 2013 federal & state tax preparation on line Once you make this election, you can never revoke it. Free 2013 federal & state tax preparation on line For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Free 2013 federal & state tax preparation on line Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Free 2013 federal & state tax preparation on line The property class generally determines the depreciation method, recovery period, and convention. Free 2013 federal & state tax preparation on line The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Free 2013 federal & state tax preparation on line Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Free 2013 federal & state tax preparation on line 5-year property. Free 2013 federal & state tax preparation on line This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Free 2013 federal & state tax preparation on line ), automobiles, and light trucks. Free 2013 federal & state tax preparation on line This class also includes appliances, carpeting, furniture, etc. Free 2013 federal & state tax preparation on line , used in a residential rental real estate activity. Free 2013 federal & state tax preparation on line Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Free 2013 federal & state tax preparation on line See chapter 5 of Publication 946. Free 2013 federal & state tax preparation on line 7-year property. Free 2013 federal & state tax preparation on line This class includes office furniture and equipment (desks, file cabinets, etc. Free 2013 federal & state tax preparation on line ). Free 2013 federal & state tax preparation on line This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Free 2013 federal & state tax preparation on line 15-year property. Free 2013 federal & state tax preparation on line This class includes roads, fences, and shrubbery (if depreciable). Free 2013 federal & state tax preparation on line Residential rental property. Free 2013 federal & state tax preparation on line This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Free 2013 federal & state tax preparation on line It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Free 2013 federal & state tax preparation on line If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Free 2013 federal & state tax preparation on line The other property classes do not generally apply to property used in rental activities. Free 2013 federal & state tax preparation on line These classes are not discussed in this publication. Free 2013 federal & state tax preparation on line See Publication 946 for more information. Free 2013 federal & state tax preparation on line Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Free 2013 federal & state tax preparation on line The recovery periods are generally longer under ADS than GDS. Free 2013 federal & state tax preparation on line The recovery period of property depends on its property class. Free 2013 federal & state tax preparation on line Under GDS, the recovery period of an asset is generally the same as its property class. Free 2013 federal & state tax preparation on line Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Free 2013 federal & state tax preparation on line See Table 2-1 for recovery periods of property commonly used in residential rental activities. Free 2013 federal & state tax preparation on line Qualified Indian reservation property. Free 2013 federal & state tax preparation on line   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Free 2013 federal & state tax preparation on line For more information, see chapter 4 of Publication 946. Free 2013 federal & state tax preparation on line Additions or improvements to property. Free 2013 federal & state tax preparation on line   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Free 2013 federal & state tax preparation on line   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Free 2013 federal & state tax preparation on line   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Free 2013 federal & state tax preparation on line You built an addition onto the house and placed it in service in 2013. Free 2013 federal & state tax preparation on line You must use MACRS for the addition. Free 2013 federal & state tax preparation on line Under GDS, the addition is depreciated as residential rental property over 27. Free 2013 federal & state tax preparation on line 5 years. Free 2013 federal & state tax preparation on line Table 2-1. Free 2013 federal & state tax preparation on line MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Free 2013 federal & state tax preparation on line 27. Free 2013 federal & state tax preparation on line 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Free 2013 federal & state tax preparation on line   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Free 2013 federal & state tax preparation on line The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Free 2013 federal & state tax preparation on line Mid-month convention. Free 2013 federal & state tax preparation on line    A mid-month convention is used for all residential rental property and nonresidential real property. Free 2013 federal & state tax preparation on line Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Free 2013 federal & state tax preparation on line Mid-quarter convention. Free 2013 federal & state tax preparation on line   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Free 2013 federal & state tax preparation on line   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line During the tax year, Tom Martin purchased the following items to use in his rental property. Free 2013 federal & state tax preparation on line He elects not to claim the special depreciation allowance discussed earlier. Free 2013 federal & state tax preparation on line A dishwasher for $400 that he placed in service in January. Free 2013 federal & state tax preparation on line Used furniture for $100 that he placed in service in September. Free 2013 federal & state tax preparation on line A refrigerator for $800 that he placed in service in October. Free 2013 federal & state tax preparation on line Tom uses the calendar year as his tax year. Free 2013 federal & state tax preparation on line The total basis of all property placed in service that year is $1,300. Free 2013 federal & state tax preparation on line The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Free 2013 federal & state tax preparation on line Tom must use the mid-quarter convention instead of the half-year convention for all three items. Free 2013 federal & state tax preparation on line Half-year convention. Free 2013 federal & state tax preparation on line    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Free 2013 federal & state tax preparation on line Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. Free 2013 federal & state tax preparation on line   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Free 2013 federal & state tax preparation on line You deduct a full year of depreciation for any other year during the recovery period. Free 2013 federal & state tax preparation on line Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Free 2013 federal & state tax preparation on line The deduction is substantially the same both ways. Free 2013 federal & state tax preparation on line You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Free 2013 federal & state tax preparation on line In this publication we will use the percentage tables. Free 2013 federal & state tax preparation on line For instructions on how to compute the deduction, see chapter 4 of Publication 946. Free 2013 federal & state tax preparation on line Residential rental property. Free 2013 federal & state tax preparation on line   You must use the straight line method and a mid-month convention for residential rental property. Free 2013 federal & state tax preparation on line In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Free 2013 federal & state tax preparation on line 5-, 7-, or 15-year property. Free 2013 federal & state tax preparation on line   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Free 2013 federal & state tax preparation on line However, in limited cases you must use the mid-quarter convention, if it applies. Free 2013 federal & state tax preparation on line For property in the 15-year class, use the 150% declining balance method and a half-year convention. Free 2013 federal & state tax preparation on line   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Free 2013 federal & state tax preparation on line The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Free 2013 federal & state tax preparation on line You make this election on Form 4562. Free 2013 federal & state tax preparation on line In Part III, column (f), enter “150 DB. Free 2013 federal & state tax preparation on line ” Once you make this election, you cannot change to another method. Free 2013 federal & state tax preparation on line   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Free 2013 federal & state tax preparation on line   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Free 2013 federal & state tax preparation on line The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Free 2013 federal & state tax preparation on line You elect the straight line method on Form 4562. Free 2013 federal & state tax preparation on line In Part III, column (f), enter “S/L. Free 2013 federal & state tax preparation on line ” Once you make this election, you cannot change to another method. Free 2013 federal & state tax preparation on line MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Free 2013 federal & state tax preparation on line The tables show the percentages for the first few years or until the change to the straight line method is made. Free 2013 federal & state tax preparation on line See Appendix A of Publication 946 for complete tables. Free 2013 federal & state tax preparation on line The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Free 2013 federal & state tax preparation on line If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Free 2013 federal & state tax preparation on line How to use the percentage tables. Free 2013 federal & state tax preparation on line   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Free 2013 federal & state tax preparation on line   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Free 2013 federal & state tax preparation on line   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Free 2013 federal & state tax preparation on line For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Free 2013 federal & state tax preparation on line See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Free 2013 federal & state tax preparation on line Unadjusted basis. Free 2013 federal & state tax preparation on line   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Free 2013 federal & state tax preparation on line   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Free 2013 federal & state tax preparation on line For more information, see chapter 4 of Publication 946. Free 2013 federal & state tax preparation on line Please click here for the text description of the image. Free 2013 federal & state tax preparation on line Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Free 2013 federal & state tax preparation on line   The percentages in these tables take into account the half-year and mid-quarter conventions. Free 2013 federal & state tax preparation on line Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Free 2013 federal & state tax preparation on line Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Free 2013 federal & state tax preparation on line If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Free 2013 federal & state tax preparation on line Example 1. Free 2013 federal & state tax preparation on line You purchased a stove and refrigerator and placed them in service in June. Free 2013 federal & state tax preparation on line Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Free 2013 federal & state tax preparation on line Both are 5-year property. Free 2013 federal & state tax preparation on line Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Free 2013 federal & state tax preparation on line For that year your depreciation deduction is $120 ($600 × . Free 2013 federal & state tax preparation on line 20) for the stove and $200 ($1,000 × . Free 2013 federal & state tax preparation on line 20) for the refrigerator. Free 2013 federal & state tax preparation on line For Year 2, the depreciation percentage is 32%. Free 2013 federal & state tax preparation on line That year's depreciation deduction will be $192 ($600 × . Free 2013 federal & state tax preparation on line 32) for the stove and $320 ($1,000 × . Free 2013 federal & state tax preparation on line 32) for the refrigerator. Free 2013 federal & state tax preparation on line Example 2. Free 2013 federal & state tax preparation on line Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Free 2013 federal & state tax preparation on line Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Free 2013 federal & state tax preparation on line 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Free 2013 federal & state tax preparation on line Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Free 2013 federal & state tax preparation on line Your depreciation deduction for the refrigerator is $50 ($1,000 x . Free 2013 federal & state tax preparation on line 05). Free 2013 federal & state tax preparation on line Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Free 2013 federal & state tax preparation on line For that year, your depreciation deduction for the stove is $150 ($600 x . Free 2013 federal & state tax preparation on line 25). Free 2013 federal & state tax preparation on line Table 2-2d. Free 2013 federal & state tax preparation on line    Use this table when you are using the GDS 27. Free 2013 federal & state tax preparation on line 5 year option for residential rental property. Free 2013 federal & state tax preparation on line Find the row for the month that you placed the property in service. Free 2013 federal & state tax preparation on line Use the percentages listed for that month to figure your depreciation deduction. Free 2013 federal & state tax preparation on line The mid-month convention is taken into account in the percentages shown in the table. Free 2013 federal & state tax preparation on line Continue to use the same row (month) under the column for the appropriate year. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You purchased a single family rental house for $185,000 and placed it in service on February 8. Free 2013 federal & state tax preparation on line The sales contract showed that the building cost $160,000 and the land cost $25,000. Free 2013 federal & state tax preparation on line Your basis for depreciation is its original cost, $160,000. Free 2013 federal & state tax preparation on line This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Free 2013 federal & state tax preparation on line 5 years. Free 2013 federal & state tax preparation on line Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Free 2013 federal & state tax preparation on line 182%. Free 2013 federal & state tax preparation on line That year's depreciation deduction is $5,091 ($160,000 x . Free 2013 federal & state tax preparation on line 03182). Free 2013 federal & state tax preparation on line Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Free 2013 federal & state tax preparation on line See Appendix B in Publication 946 for other property. Free 2013 federal & state tax preparation on line If your property is not listed in Appendix B, it is considered to have no class life. Free 2013 federal & state tax preparation on line Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Free 2013 federal & state tax preparation on line Use the mid-month convention for residential rental property and nonresidential real property. Free 2013 federal & state tax preparation on line For all other property, use the half-year or mid-quarter convention, as appropriate. Free 2013 federal & state tax preparation on line See Publication 946 for ADS depreciation tables. Free 2013 federal & state tax preparation on line Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Free 2013 federal & state tax preparation on line If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Free 2013 federal & state tax preparation on line For more information, see Depreciation under Decreases to Basis in Publication 551. Free 2013 federal & state tax preparation on line If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Free 2013 federal & state tax preparation on line S. Free 2013 federal & state tax preparation on line Individual Income Tax Return. Free 2013 federal & state tax preparation on line If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Free 2013 federal & state tax preparation on line Filing an amended return. Free 2013 federal & state tax preparation on line   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Free 2013 federal & state tax preparation on line You claimed the incorrect amount because of a mathematical error made in any year. Free 2013 federal & state tax preparation on line You claimed the incorrect amount because of a posting error made in any year. Free 2013 federal & state tax preparation on line You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Free 2013 federal & state tax preparation on line You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Free 2013 federal & state tax preparation on line   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Free 2013 federal & state tax preparation on line This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Free 2013 federal & state tax preparation on line   If an amended return is allowed, you must file it by the later of the following dates. Free 2013 federal & state tax preparation on line 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Free 2013 federal & state tax preparation on line A return filed before an unextended due date is considered filed on that due date. Free 2013 federal & state tax preparation on line 2 years from the time you paid your tax for that year. Free 2013 federal & state tax preparation on line Changing your accounting method. Free 2013 federal & state tax preparation on line   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Free 2013 federal & state tax preparation on line In some instances, that consent is automatic. Free 2013 federal & state tax preparation on line For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. Free 2013 federal & state tax preparation on line Prev  Up  Next   Home   More Online Publications
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Free 2013 federal & state tax preparation on line 8. Free 2013 federal & state tax preparation on line   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. Free 2013 federal & state tax preparation on line Cash method. Free 2013 federal & state tax preparation on line Car and Truck ExpensesOffice in the home. Free 2013 federal & state tax preparation on line Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. Free 2013 federal & state tax preparation on line InsuranceHow to figure the deduction. Free 2013 federal & state tax preparation on line Interest Legal and Professional FeesTax preparation fees. Free 2013 federal & state tax preparation on line Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. Free 2013 federal & state tax preparation on line Taxi, commuter bus, and limousine. Free 2013 federal & state tax preparation on line Baggage and shipping. Free 2013 federal & state tax preparation on line Car or truck. Free 2013 federal & state tax preparation on line Meals and lodging. Free 2013 federal & state tax preparation on line Cleaning. Free 2013 federal & state tax preparation on line Telephone. Free 2013 federal & state tax preparation on line Tips. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line Business Use of Your HomeExceptions to exclusive use. Free 2013 federal & state tax preparation on line Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. Free 2013 federal & state tax preparation on line These costs are known as business expenses. Free 2013 federal & state tax preparation on line These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. Free 2013 federal & state tax preparation on line To be deductible, a business expense must be both ordinary and necessary. Free 2013 federal & state tax preparation on line An ordinary expense is one that is common and accepted in your field of business. Free 2013 federal & state tax preparation on line A necessary expense is one that is helpful and appropriate for your business. Free 2013 federal & state tax preparation on line An expense does not have to be indispensable to be considered necessary. Free 2013 federal & state tax preparation on line For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. Free 2013 federal & state tax preparation on line If you have an expense that is partly for business and partly personal, separate the personal part from the business part. Free 2013 federal & state tax preparation on line The personal part is not deductible. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Bad Debts If someone owes you money you cannot collect, you have a bad debt. Free 2013 federal & state tax preparation on line There are two kinds of bad debts, business bad debts and nonbusiness bad debts. Free 2013 federal & state tax preparation on line A business bad debt is generally one that comes from operating your trade or business. Free 2013 federal & state tax preparation on line You may be able to deduct business bad debts as an expense on your business tax return. Free 2013 federal & state tax preparation on line Business bad debt. Free 2013 federal & state tax preparation on line   A business bad debt is a loss from the worthlessness of a debt that was either of the following. Free 2013 federal & state tax preparation on line Created or acquired in your business. Free 2013 federal & state tax preparation on line Closely related to your business when it became partly or totally worthless. Free 2013 federal & state tax preparation on line A debt is closely related to your business if your primary motive for incurring the debt is a business reason. Free 2013 federal & state tax preparation on line   Business bad debts are mainly the result of credit sales to customers. Free 2013 federal & state tax preparation on line They can also be the result of loans to suppliers, clients, employees, or distributors. Free 2013 federal & state tax preparation on line Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. Free 2013 federal & state tax preparation on line If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. Free 2013 federal & state tax preparation on line    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. Free 2013 federal & state tax preparation on line Accrual method. Free 2013 federal & state tax preparation on line   If you use an accrual method of accounting, you normally report income as you earn it. Free 2013 federal & state tax preparation on line You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. Free 2013 federal & state tax preparation on line Cash method. Free 2013 federal & state tax preparation on line   If you use the cash method of accounting, you normally report income when you receive payment. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information about business bad debts, see chapter 10 in Publication 535. Free 2013 federal & state tax preparation on line Nonbusiness bad debts. Free 2013 federal & state tax preparation on line   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). Free 2013 federal & state tax preparation on line For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line See Form 8936 and Form 8910 for more information. Free 2013 federal & state tax preparation on line Local transportation expenses. Free 2013 federal & state tax preparation on line   Local transportation expenses include the ordinary and necessary costs of all the following. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Tax home is defined later. Free 2013 federal & state tax preparation on line Visiting clients or customers. Free 2013 federal & state tax preparation on line Going to a business meeting away from your regular workplace. Free 2013 federal & state tax preparation on line Getting from your home to a temporary workplace when you have one or more regular places of work. Free 2013 federal & state tax preparation on line These temporary workplaces can be either within the area of your tax home or outside that area. Free 2013 federal & state tax preparation on line Local business transportation does not include expenses you have while traveling away from home overnight. Free 2013 federal & state tax preparation on line Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. Free 2013 federal & state tax preparation on line However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Free 2013 federal & state tax preparation on line   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Free 2013 federal & state tax preparation on line It includes the entire city or general area in which your business or work is located. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You operate a printing business out of rented office space. Free 2013 federal & state tax preparation on line You use your van to deliver completed jobs to your customers. Free 2013 federal & state tax preparation on line You can deduct the cost of round-trip transportation between your customers and your print shop. Free 2013 federal & state tax preparation on line    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. Free 2013 federal & state tax preparation on line These costs are personal commuting expenses. Free 2013 federal & state tax preparation on line Office in the home. Free 2013 federal & state tax preparation on line   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. Free 2013 federal & state tax preparation on line For more information, see Business Use of Your Home, later. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You are a graphics designer. Free 2013 federal & state tax preparation on line You operate your business out of your home. Free 2013 federal & state tax preparation on line Your home qualifies as your principal place of business. Free 2013 federal & state tax preparation on line You occasionally have to drive to your clients to deliver your completed work. Free 2013 federal & state tax preparation on line You can deduct the cost of the round-trip transportation between your home and your clients. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Standard mileage rate. Free 2013 federal & state tax preparation on line Actual expenses. Free 2013 federal & state tax preparation on line Standard mileage rate. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line For 2013, the standard mileage rate is 56. Free 2013 federal & state tax preparation on line 5 cents per mile. Free 2013 federal & state tax preparation on line    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. Free 2013 federal & state tax preparation on line Choosing the standard mileage rate. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line In later years, you can choose to use either the standard mileage rate or actual expenses. Free 2013 federal & state tax preparation on line   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). Free 2013 federal & state tax preparation on line Standard mileage rate not allowed. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line Parking fees and tolls. Free 2013 federal & state tax preparation on line   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Free 2013 federal & state tax preparation on line (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Free 2013 federal & state tax preparation on line ) Actual expenses. Free 2013 federal & state tax preparation on line   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. Free 2013 federal & state tax preparation on line    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. Free 2013 federal & state tax preparation on line   Actual car expenses include the costs of the following items. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You can divide your expenses based on the miles driven for each purpose. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You are the sole proprietor of a flower shop. Free 2013 federal & state tax preparation on line You drove your van 20,000 miles during the year. Free 2013 federal & state tax preparation on line 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). Free 2013 federal & state tax preparation on line You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information about the rules for claiming car and truck expenses, see Publication 463. Free 2013 federal & state tax preparation on line Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line For details, see chapter 11 in Publication 535. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. Free 2013 federal & state tax preparation on line This method of deducting the cost of business property is called depreciation. Free 2013 federal & state tax preparation on line The discussion here is brief. Free 2013 federal & state tax preparation on line You will find more information about depreciation in Publication 946. Free 2013 federal & state tax preparation on line What property can be depreciated?   You can depreciate property if it meets all the following requirements. Free 2013 federal & state tax preparation on line It must be property you own. Free 2013 federal & state tax preparation on line It must be used in business or held to produce income. Free 2013 federal & state tax preparation on line You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. Free 2013 federal & state tax preparation on line It must have a useful life that extends substantially beyond the year it is placed in service. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. Free 2013 federal & state tax preparation on line It must not be excepted property. Free 2013 federal & state tax preparation on line This includes property placed in service and disposed of in the same year. Free 2013 federal & state tax preparation on line Repairs. Free 2013 federal & state tax preparation on line    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. Free 2013 federal & state tax preparation on line You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. Free 2013 federal & state tax preparation on line Depreciation method. Free 2013 federal & state tax preparation on line   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Free 2013 federal & state tax preparation on line MACRS is discussed in detail in Publication 946. Free 2013 federal & state tax preparation on line Section 179 deduction. Free 2013 federal & state tax preparation on line   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Free 2013 federal & state tax preparation on line This deduction is known as the “section 179 deduction. Free 2013 federal & state tax preparation on line ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). Free 2013 federal & state tax preparation on line See IRC 179(e). Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line 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). Free 2013 federal & state tax preparation on line Special rules apply to trucks and vans. Free 2013 federal & state tax preparation on line For more information, see Publication 946. Free 2013 federal & state tax preparation on line It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. Free 2013 federal & state tax preparation on line    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. Free 2013 federal & state tax preparation on line For more information, see the Instructions for Form 4562 or Publication 946. Free 2013 federal & state tax preparation on line Listed property. Free 2013 federal & state tax preparation on line   You must follow special rules and recordkeeping requirements when depreciating listed property. Free 2013 federal & state tax preparation on line Listed property is any of the following. Free 2013 federal & state tax preparation on line Most passenger automobiles. Free 2013 federal & state tax preparation on line Most other property used for transportation. Free 2013 federal & state tax preparation on line Any property of a type generally used for entertainment, recreation, or amusement. Free 2013 federal & state tax preparation on line Certain computers and related peripheral equipment. Free 2013 federal & state tax preparation on line   For more information about listed property, see Publication 946. Free 2013 federal & state tax preparation on line Form 4562. Free 2013 federal & state tax preparation on line   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. Free 2013 federal & state tax preparation on line Depreciation on property placed in service during the current tax year. Free 2013 federal & state tax preparation on line A section 179 deduction. Free 2013 federal & state tax preparation on line Depreciation on any listed property (regardless of when it was placed in service). Free 2013 federal & state tax preparation on line    If you have to use Form 4562, you must file Schedule C. Free 2013 federal & state tax preparation on line You cannot use Schedule C-EZ. Free 2013 federal & state tax preparation on line   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. Free 2013 federal & state tax preparation on line The pay may be in cash, property, or services. Free 2013 federal & state tax preparation on line To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. Free 2013 federal & state tax preparation on line In addition, the pay must meet both the following tests. Free 2013 federal & state tax preparation on line The pay must be reasonable. Free 2013 federal & state tax preparation on line The pay must be for services performed. Free 2013 federal & state tax preparation on line Chapter 2 in Publication 535 explains and defines these requirements. Free 2013 federal & state tax preparation on line You cannot deduct your own salary or any personal withdrawals you make from your business. Free 2013 federal & state tax preparation on line As a sole proprietor, you are not an employee of the business. Free 2013 federal & state tax preparation on line If you had employees during the year, you must use Schedule C. Free 2013 federal & state tax preparation on line You cannot use Schedule C-EZ. Free 2013 federal & state tax preparation on line Kinds of pay. Free 2013 federal & state tax preparation on line   Some of the ways you may provide pay to your employees are listed below. Free 2013 federal & state tax preparation on line For an explanation of each of these items, see chapter 2 in Publication 535. Free 2013 federal & state tax preparation on line Awards. Free 2013 federal & state tax preparation on line Bonuses. Free 2013 federal & state tax preparation on line Education expenses. Free 2013 federal & state tax preparation on line Fringe benefits (discussed later). Free 2013 federal & state tax preparation on line Loans or advances you do not expect the employee to repay if they are for personal services actually performed. Free 2013 federal & state tax preparation on line Property you transfer to an employee as payment for services. Free 2013 federal & state tax preparation on line Reimbursements for employee business expenses. Free 2013 federal & state tax preparation on line Sick pay. Free 2013 federal & state tax preparation on line Vacation pay. Free 2013 federal & state tax preparation on line Fringe benefits. Free 2013 federal & state tax preparation on line   A fringe benefit is a form of pay for the performance of services. Free 2013 federal & state tax preparation on line The following are examples of fringe benefits. Free 2013 federal & state tax preparation on line Benefits under qualified employee benefit programs. Free 2013 federal & state tax preparation on line Meals and lodging. Free 2013 federal & state tax preparation on line The use of a car. Free 2013 federal & state tax preparation on line Flights on airplanes. Free 2013 federal & state tax preparation on line Discounts on property or services. Free 2013 federal & state tax preparation on line Memberships in country clubs or other social clubs. Free 2013 federal & state tax preparation on line Tickets to entertainment or sporting events. Free 2013 federal & state tax preparation on line   Employee benefit programs include the following. Free 2013 federal & state tax preparation on line Accident and health plans. Free 2013 federal & state tax preparation on line Adoption assistance. Free 2013 federal & state tax preparation on line Cafeteria plans. Free 2013 federal & state tax preparation on line Dependent care assistance. Free 2013 federal & state tax preparation on line Educational assistance. Free 2013 federal & state tax preparation on line Group-term life insurance coverage. Free 2013 federal & state tax preparation on line Welfare benefit funds. Free 2013 federal & state tax preparation on line   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. Free 2013 federal & state tax preparation on line    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. Free 2013 federal & state tax preparation on line For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free 2013 federal & state tax preparation on line Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. Free 2013 federal & state tax preparation on line Fire, theft, flood, or similar insurance. Free 2013 federal & state tax preparation on line Credit insurance that covers losses from business bad debts. Free 2013 federal & state tax preparation on line Group hospitalization and medical insurance for employees, including long-term care insurance. Free 2013 federal & state tax preparation on line Liability insurance. Free 2013 federal & state tax preparation on line Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Free 2013 federal & state tax preparation on line Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Free 2013 federal & state tax preparation on line Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Free 2013 federal & state tax preparation on line Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. Free 2013 federal & state tax preparation on line Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Free 2013 federal & state tax preparation on line Nondeductible premiums. Free 2013 federal & state tax preparation on line   You cannot deduct premiums on the following kinds of insurance. Free 2013 federal & state tax preparation on line Self-insurance reserve funds. Free 2013 federal & state tax preparation on line You cannot deduct amounts credited to a reserve set up for self-insurance. Free 2013 federal & state tax preparation on line This applies even if you cannot get business insurance coverage for certain business risks. Free 2013 federal & state tax preparation on line However, your actual losses may be deductible. Free 2013 federal & state tax preparation on line For more information, see Publication 547, Casualties, Disasters, and Thefts. Free 2013 federal & state tax preparation on line Loss of earnings. Free 2013 federal & state tax preparation on line You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. Free 2013 federal & state tax preparation on line However, see item (8) in the previous list. Free 2013 federal & state tax preparation on line Certain life insurance and annuities. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line The disallowance applies without regard to whom the policy covers. Free 2013 federal & state tax preparation on line Insurance to secure a loan. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Free 2013 federal & state tax preparation on line In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Free 2013 federal & state tax preparation on line Self-employed health insurance deduction. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line How to figure the deduction. Free 2013 federal & state tax preparation on line   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Free 2013 federal & state tax preparation on line However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. Free 2013 federal & state tax preparation on line You have more than one source of income subject to self-employment tax. Free 2013 federal & state tax preparation on line You file Form 2555 or Form 2555-EZ (relating to foreign earned income). Free 2013 federal & state tax preparation on line You are using amounts paid for qualified long-term care insurance to figure the deduction. Free 2013 federal & state tax preparation on line Prepayment. Free 2013 federal & state tax preparation on line   You cannot deduct expenses in advance, even if you pay them in advance. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line In 2013, you signed a 3-year insurance contract. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You can deduct in 2014 and 2015 the premium allocable to those years. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information about deducting insurance, see chapter 6 in Publication 535. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Interest relates to your business if you use the proceeds of the loan for a business expense. Free 2013 federal & state tax preparation on line It does not matter what type of property secures the loan. Free 2013 federal & state tax preparation on line You can deduct interest on a debt only if you meet all of the following requirements. Free 2013 federal & state tax preparation on line You are legally liable for that debt. Free 2013 federal & state tax preparation on line Both you and the lender intend that the debt be repaid. Free 2013 federal & state tax preparation on line You and the lender have a true debtor-creditor relationship. Free 2013 federal & state tax preparation on line You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. Free 2013 federal & state tax preparation on line If a loan is part business and part personal, you must divide the interest between the personal part and the business part. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line In 2013, you paid $600 interest on a car loan. Free 2013 federal & state tax preparation on line During 2013, you used the car 60% for business and 40% for personal purposes. Free 2013 federal & state tax preparation on line You are claiming actual expenses on the car. Free 2013 federal & state tax preparation on line You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. Free 2013 federal & state tax preparation on line The remaining interest of $240 is a nondeductible personal expense. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information about deducting interest, see chapter 4 in Publication 535. Free 2013 federal & state tax preparation on line That chapter explains the following items. Free 2013 federal & state tax preparation on line Interest you can deduct. Free 2013 federal & state tax preparation on line Interest you cannot deduct. Free 2013 federal & state tax preparation on line How to allocate interest between personal and business use. Free 2013 federal & state tax preparation on line When to deduct interest. Free 2013 federal & state tax preparation on line The rules for a below-market interest rate loan. Free 2013 federal & state tax preparation on line (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. Free 2013 federal & state tax preparation on line ) 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. Free 2013 federal & state tax preparation on line However, you usually cannot deduct legal fees you pay to acquire business assets. Free 2013 federal & state tax preparation on line Add them to the basis of the property. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line For more information, see Publication 529, Miscellaneous Deductions. Free 2013 federal & state tax preparation on line Tax preparation fees. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. Free 2013 federal & state tax preparation on line SEP (Simplified Employee Pension) plans. Free 2013 federal & state tax preparation on line SIMPLE (Savings Incentive Match Plan for Employees) plans. Free 2013 federal & state tax preparation on line Qualified plans (including Keogh or H. Free 2013 federal & state tax preparation on line R. Free 2013 federal & state tax preparation on line 10 plans). Free 2013 federal & state tax preparation on line SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. Free 2013 federal & state tax preparation on line You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. Free 2013 federal & state tax preparation on line If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. Free 2013 federal & state tax preparation on line You can also deduct trustees' fees if contributions to the plan do not cover them. Free 2013 federal & state tax preparation on line Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. Free 2013 federal & state tax preparation on line These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. Free 2013 federal & state tax preparation on line For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Free 2013 federal & state tax preparation on line Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. Free 2013 federal & state tax preparation on line Rent Expense Rent is any amount you pay for the use of property you do not own. Free 2013 federal & state tax preparation on line In general, you can deduct rent as a business expense only if the rent is for property you use in your business. Free 2013 federal & state tax preparation on line If you have or will receive equity in or title to the property, you cannot deduct the rent. Free 2013 federal & state tax preparation on line Unreasonable rent. Free 2013 federal & state tax preparation on line   You cannot take a rental deduction for unreasonable rents. Free 2013 federal & state tax preparation on line Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Rent is not unreasonable just because it is figured as a percentage of gross receipts. Free 2013 federal & state tax preparation on line   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Free 2013 federal & state tax preparation on line For a list of the other related persons, see section 267 of the Internal Revenue Code. Free 2013 federal & state tax preparation on line Rent on your home. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line You must meet the requirements for business use of your home. Free 2013 federal & state tax preparation on line For more information, see Business Use of Your Home , later. Free 2013 federal & state tax preparation on line Rent paid in advance. Free 2013 federal & state tax preparation on line   Generally, rent paid in your business is deductible in the year paid or accrued. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You can deduct the rest of your payment only over the period to which it applies. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information about rent, see chapter 3 in Publication 535. Free 2013 federal & state tax preparation on line Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. Free 2013 federal & state tax preparation on line Income taxes. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. Free 2013 federal & state tax preparation on line Do not deduct federal income tax. Free 2013 federal & state tax preparation on line Employment taxes. Free 2013 federal & state tax preparation on line   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. Free 2013 federal & state tax preparation on line Employment taxes are discussed briefly in chapter 1. Free 2013 federal & state tax preparation on line You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Free 2013 federal & state tax preparation on line Deduct these payments as taxes. Free 2013 federal & state tax preparation on line Self-employment tax. Free 2013 federal & state tax preparation on line   You can deduct one-half of your self-employment tax on line 27 of Form 1040. Free 2013 federal & state tax preparation on line Self-employment tax is discussed in chapters 1 and 10. Free 2013 federal & state tax preparation on line Personal property tax. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line   You can also deduct registration fees for the right to use property within a state or local area. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. Free 2013 federal & state tax preparation on line They had to pay $25 for their annual state license tags and $20 for their city registration sticker. Free 2013 federal & state tax preparation on line They also paid $235 in city personal property tax on the car, for a total of $280. Free 2013 federal & state tax preparation on line They are claiming their actual car expenses. Free 2013 federal & state tax preparation on line Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. Free 2013 federal & state tax preparation on line Real estate taxes. Free 2013 federal & state tax preparation on line   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. Free 2013 federal & state tax preparation on line Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line   For more information about real estate taxes, see chapter 5 in Publication 535. Free 2013 federal & state tax preparation on line That chapter explains special rules for deducting the following items. Free 2013 federal & state tax preparation on line Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. Free 2013 federal & state tax preparation on line Real estate taxes when you buy or sell property during the year. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Sales tax. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Free 2013 federal & state tax preparation on line If the property is depreciable, add the sales tax to the basis for depreciation. Free 2013 federal & state tax preparation on line For information on the basis of property, see Publication 551, Basis of Assets. Free 2013 federal & state tax preparation on line    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. Free 2013 federal & state tax preparation on line Do not include these taxes in gross receipts or sales. Free 2013 federal & state tax preparation on line Excise taxes. Free 2013 federal & state tax preparation on line   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. Free 2013 federal & state tax preparation on line Excise taxes are discussed briefly in chapter 1. Free 2013 federal & state tax preparation on line Fuel taxes. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line Do not deduct these taxes as a separate item. Free 2013 federal & state tax preparation on line   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Free 2013 federal & state tax preparation on line For more information, see Publication 510, Excise Taxes. Free 2013 federal & state tax preparation on line Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. Free 2013 federal & state tax preparation on line Table 8-1. Free 2013 federal & state tax preparation on line When Are Entertainment Expenses Deductible? (Note. Free 2013 federal & state tax preparation on line The following is a summary of the rules for deducting entertainment expenses. Free 2013 federal & state tax preparation on line For more details about these rules, see Publication 463. Free 2013 federal & state tax preparation on line ) 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. Free 2013 federal & state tax preparation on line Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Free 2013 federal & state tax preparation on line An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Free 2013 federal & state tax preparation on line A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. Free 2013 federal & state tax preparation on line Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Free 2013 federal & state tax preparation on line You cannot deduct expenses that are lavish or extravagant under the circumstances. Free 2013 federal & state tax preparation on line You generally can deduct only 50% of your unreimbursed entertainment expenses. Free 2013 federal & state tax preparation on line Travel expenses. Free 2013 federal & state tax preparation on line   These are the ordinary and necessary expenses of traveling away from home for your business. Free 2013 federal & state tax preparation on line You are traveling away from home if both the following conditions are met. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line You need to get sleep or rest to meet the demands of your work while away from home. Free 2013 federal & state tax preparation on line Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Free 2013 federal & state tax preparation on line It includes the entire city or general area in which your business is located. Free 2013 federal & state tax preparation on line See Publication 463 for more information. Free 2013 federal & state tax preparation on line   The following is a brief discussion of the expenses you can deduct. Free 2013 federal & state tax preparation on line Transportation. Free 2013 federal & state tax preparation on line   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. Free 2013 federal & state tax preparation on line Taxi, commuter bus, and limousine. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line Baggage and shipping. Free 2013 federal & state tax preparation on line   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. Free 2013 federal & state tax preparation on line Car or truck. Free 2013 federal & state tax preparation on line   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Free 2013 federal & state tax preparation on line Meals and lodging. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line In most cases, you can deduct only 50% of your meal expenses. Free 2013 federal & state tax preparation on line Cleaning. Free 2013 federal & state tax preparation on line   You can deduct the costs of dry cleaning and laundry while on your business trip. Free 2013 federal & state tax preparation on line Telephone. Free 2013 federal & state tax preparation on line   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. Free 2013 federal & state tax preparation on line Tips. Free 2013 federal & state tax preparation on line   You can deduct the tips you pay for any expense in this list. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information about travel expenses, see Publication 463. Free 2013 federal & state tax preparation on line Entertainment expenses. Free 2013 federal & state tax preparation on line   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. Free 2013 federal & state tax preparation on line In most cases, you can deduct only 50% of these expenses. Free 2013 federal & state tax preparation on line   The following are examples of entertainment expenses. Free 2013 federal & state tax preparation on line Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. Free 2013 federal & state tax preparation on line Providing meals, a hotel suite, or a car to business customers or their families. Free 2013 federal & state tax preparation on line To be deductible, the expenses must meet the rules listed in Table 8-1. Free 2013 federal & state tax preparation on line For details about these rules, see Publication 463. Free 2013 federal & state tax preparation on line Reimbursing your employees for expenses. Free 2013 federal & state tax preparation on line   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line For details, see chapter 11 in Publication 535. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. Free 2013 federal & state tax preparation on line Even then, your deduction may be limited. Free 2013 federal & state tax preparation on line To qualify to claim expenses for business use of your home, you must meet the following tests. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Exclusive use. Free 2013 federal & state tax preparation on line   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Free 2013 federal & state tax preparation on line The area used for business can be a room or other separately identifiable space. Free 2013 federal & state tax preparation on line The space does not need to be marked off by a permanent partition. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line Example. Free 2013 federal & state tax preparation on line You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Free 2013 federal & state tax preparation on line Your family also uses the den for recreation. Free 2013 federal & state tax preparation on line The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. Free 2013 federal & state tax preparation on line Exceptions to exclusive use. Free 2013 federal & state tax preparation on line   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. Free 2013 federal & state tax preparation on line For the storage of inventory or product samples. Free 2013 federal & state tax preparation on line As a daycare facility. Free 2013 federal & state tax preparation on line For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Free 2013 federal & state tax preparation on line Regular use. Free 2013 federal & state tax preparation on line   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Principal place of business. Free 2013 federal & state tax preparation on line   You can have more than one business location, including your home, for a single trade or business. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line To determine your principal place of business, you must consider all the facts and circumstances. Free 2013 federal & state tax preparation on line   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Free 2013 federal & state tax preparation on line You use it exclusively and regularly for administrative or management activities of your business. Free 2013 federal & state tax preparation on line You have no other fixed location where you conduct substantial administrative or management activities of your business. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line The relative importance of the activities performed at each location. Free 2013 federal & state tax preparation on line If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. Free 2013 federal & state tax preparation on line   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Free 2013 federal & state tax preparation on line However, for other ways to qualify to deduct home office expenses, see Publication 587. Free 2013 federal & state tax preparation on line Deduction limit. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line   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. Free 2013 federal & state tax preparation on line 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)). Free 2013 federal & state tax preparation on line 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. Free 2013 federal & state tax preparation on line Do not include in (2) above your deduction for one-half of your self-employment tax. Free 2013 federal & state tax preparation on line   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Free 2013 federal & state tax preparation on line New simplified method. Free 2013 federal & state tax preparation on line    The IRS now provides a simplified method to determine your expenses for business use of your home. Free 2013 federal & state tax preparation on line The simplified method is an alternative to calculating and substantiating actual expenses. Free 2013 federal & state tax preparation on line In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. Free 2013 federal & state tax preparation on line The area you use to figure your deduction is limited to 300 square feet. Free 2013 federal & state tax preparation on line For more information, see the Instructions for Schedule C. Free 2013 federal & state tax preparation on line More information. Free 2013 federal & state tax preparation on line   For more information on deducting expenses for the business use of your home, see Publication 587. Free 2013 federal & state tax preparation on line Other Expenses You Can Deduct You may also be able to deduct the following expenses. Free 2013 federal & state tax preparation on line See Publication 535 to find out whether you can deduct them. Free 2013 federal & state tax preparation on line Advertising. Free 2013 federal & state tax preparation on line Bank fees. Free 2013 federal & state tax preparation on line Donations to business organizations. Free 2013 federal & state tax preparation on line Education expenses. Free 2013 federal & state tax preparation on line Energy efficient commercial buildings deduction expenses. Free 2013 federal & state tax preparation on line Impairment-related expenses. Free 2013 federal & state tax preparation on line Interview expense allowances. Free 2013 federal & state tax preparation on line Licenses and regulatory fees. Free 2013 federal & state tax preparation on line Moving machinery. Free 2013 federal & state tax preparation on line Outplacement services. Free 2013 federal & state tax preparation on line Penalties and fines you pay for late performance or nonperformance of a contract. Free 2013 federal & state tax preparation on line Repairs that keep your property in a normal efficient operating condition. Free 2013 federal & state tax preparation on line Repayments of income. Free 2013 federal & state tax preparation on line Subscriptions to trade or professional publications. Free 2013 federal & state tax preparation on line Supplies and materials. Free 2013 federal & state tax preparation on line Utilities. Free 2013 federal & state tax preparation on line Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. Free 2013 federal & state tax preparation on line For more information, see Publication 535. Free 2013 federal & state tax preparation on line Bribes and kickbacks. Free 2013 federal & state tax preparation on line Charitable contributions. Free 2013 federal & state tax preparation on line Demolition expenses or losses. Free 2013 federal & state tax preparation on line Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. Free 2013 federal & state tax preparation on line Lobbying expenses. Free 2013 federal & state tax preparation on line Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. Free 2013 federal & state tax preparation on line Personal, living, and family expenses. Free 2013 federal & state tax preparation on line Political contributions. Free 2013 federal & state tax preparation on line Repairs that add to the value of your property or significantly increase its life. Free 2013 federal & state tax preparation on line Prev  Up  Next   Home   More Online Publications