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Free tax efile 2. Free tax efile   Filing Status Table of Contents What's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. Free tax efile Divorce and remarriage. Free tax efile Annulled marriages. Free tax efile Head of household or qualifying widow(er) with dependent child. Free tax efile Considered married. Free tax efile Same-sex marriage. Free tax efile Spouse died during the year. Free tax efile Married persons living apart. Free tax efile Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child What's New Filing status for same-sex married couples. Free tax efile  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Free tax efile See Same-sex marriage under Marital Status, later. Free tax efile Introduction This chapter helps you determine which filing status to use. Free tax efile There are five filing statuses. Free tax efile Single. Free tax efile Married Filing Jointly. Free tax efile Married Filing Separately. Free tax efile Head of Household. Free tax efile Qualifying Widow(er) With Dependent Child. Free tax efile If more than one filing status applies to you, choose the one that will give you the lowest tax. Free tax efile You must determine your filing status before you can determine whether you must file a tax return (chapter 1), your standard deduction (chapter 20), and your tax (chapter 30). Free tax efile You also use your filing status to determine whether you are eligible to claim certain deductions and credits. Free tax efile Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 519 U. Free tax efile S. Free tax efile Tax Guide for Aliens 555 Community Property Marital Status In general, your filing status depends on whether you are considered unmarried or married. Free tax efile Unmarried persons. Free tax efile   You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. Free tax efile State law governs whether you are married or legally separated under a divorce or separate maintenance decree. Free tax efile Divorced persons. Free tax efile   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year. Free tax efile Divorce and remarriage. Free tax efile   If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years. Free tax efile Annulled marriages. Free tax efile    If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. Free tax efile You must file Form 1040X, Amended U. Free tax efile S. Free tax efile Individual Income Tax Return, claiming single or head of household status for all tax years that are affected by the annulment and are not closed by the statute of limitations for filing a tax return. Free tax efile Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Free tax efile If you filed your original return early (for example, March 1), your return is considered filed on the due date (generally April 15). Free tax efile However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1. Free tax efile Head of household or qualifying widow(er) with dependent child. Free tax efile   If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. Free tax efile See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify. Free tax efile Married persons. Free tax efile   If you are considered married, you and your spouse can file a joint return or separate returns. Free tax efile Considered married. Free tax efile   You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests. Free tax efile You are married and living together as a married couple. Free tax efile You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began. Free tax efile You are married and living apart, but not legally separated under a decree of divorce or separate maintenance. Free tax efile You are separated under an interlocutory (not final) decree of divorce. Free tax efile Same-sex marriage. Free tax efile   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Free tax efile The term “spouse” includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Free tax efile However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Free tax efile For more details, see Publication 501. Free tax efile Spouse died during the year. Free tax efile   If your spouse died during the year, you are considered married for the whole year for filing status purposes. Free tax efile   If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. Free tax efile For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child . Free tax efile   If you remarried before the end of the tax year, you can file a joint return with your new spouse. Free tax efile Your deceased spouse's filing status is married filing separately for that year. Free tax efile Married persons living apart. Free tax efile   If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. Free tax efile If you qualify to file as head of household instead of married filing separately, your standard deduction will be higher. Free tax efile Also, your tax may be lower, and you may be able to claim the earned income credit. Free tax efile See Head of Household , later. Free tax efile Single Your filing status is single if you are considered unmarried and you do not qualify for another filing status. Free tax efile To determine your marital status, see Marital Status , earlier. Free tax efile Widow(er). Free tax efile   Your filing status may be single if you were widowed before January 1, 2013, and did not remarry before the end of 2013. Free tax efile You may, however, be able to use another filing status that will give you a lower tax. Free tax efile See Head of Household and Qualifying Widow(er) With Dependent Child , later, to see if you qualify. Free tax efile How to file. Free tax efile   You can file Form 1040. Free tax efile If you have taxable income of less than $100,000, you may be able to file Form 1040A. Free tax efile If, in addition, you have no dependents, and are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Free tax efile If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Free tax efile Use the Single column of the Tax Table or Section A of the Tax Computation Worksheet to figure your tax. Free tax efile Married Filing Jointly You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. Free tax efile On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. Free tax efile You can file a joint return even if one of you had no income or deductions. Free tax efile If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Free tax efile Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses. Free tax efile If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). Free tax efile You can choose the method that gives the two of you the lower combined tax. Free tax efile How to file. Free tax efile   If you file as married filing jointly, you can use Form 1040. Free tax efile If you and your spouse have taxable income of less than $100,000, you may be able to file Form 1040A. Free tax efile If, in addition, you and your spouse have no dependents, are both under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Free tax efile If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. Free tax efile Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Free tax efile Spouse died. Free tax efile   If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. Free tax efile See Spouse died during the year under Marital Status, earlier, for more information. Free tax efile   If your spouse died in 2014 before filing a 2013 return, you can choose married filing jointly as your filing status on your 2013 return. Free tax efile Divorced persons. Free tax efile   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status. Free tax efile Filing a Joint Return Both you and your spouse must include all of your income, exemptions, and deductions on your joint return. Free tax efile Accounting period. Free tax efile   Both of you must use the same accounting period, but you can use different accounting methods. Free tax efile See Accounting Periods and Accounting Methods in chapter 1. Free tax efile Joint responsibility. Free tax efile   Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Free tax efile This means that if one spouse does not pay the tax due, the other may have to. Free tax efile Or, if one spouse does not report the correct tax, both spouses may be responsible for any additional taxes assessed by the IRS. Free tax efile One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse. Free tax efile You may want to file separately if: You believe your spouse is not reporting all of his or her income, or You do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does not pay enough estimated tax. Free tax efile Divorced taxpayer. Free tax efile   You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. Free tax efile This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Free tax efile Relief from joint responsibility. Free tax efile   In some cases, one spouse may be relieved of joint responsibility for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Free tax efile You can ask for relief no matter how small the liability. Free tax efile   There are three types of relief available. Free tax efile Innocent spouse relief. Free tax efile Separation of liability (available only to joint filers who are divorced, widowed, legally separated, or have not lived together for the 12 months ending on the date the election for this relief is filed). Free tax efile Equitable relief. Free tax efile    You must file Form 8857, Request for Innocent Spouse Relief, to request relief from joint responsibility. Free tax efile Publication 971, Innocent Spouse Relief, explains these kinds of relief and who may qualify for them. Free tax efile Signing a joint return. Free tax efile   For a return to be considered a joint return, both spouses generally must sign the return. Free tax efile Spouse died before signing. Free tax efile   If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. Free tax efile If neither you nor anyone else has yet been appointed as executor or administrator, you can sign the return for your spouse and enter “Filing as surviving spouse” in the area where you sign the return. Free tax efile Spouse away from home. Free tax efile   If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so that it can be filed on time. Free tax efile Injury or disease prevents signing. Free tax efile   If your spouse cannot sign because of disease or injury and tells you to sign for him or her, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife). Free tax efile ” Be sure to also sign in the space provided for your signature. Free tax efile Attach a dated statement, signed by you, to the return. Free tax efile The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and should state that your spouse has agreed to your signing for him or her. Free tax efile Signing as guardian of spouse. Free tax efile   If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian. Free tax efile Spouse in combat zone. Free tax efile   You can sign a joint return for your spouse if your spouse cannot sign because he or she is serving in a combat zone (such as the Persian Gulf Area, Serbia, Montenegro, Albania, or Afghanistan), even if you do not have a power of attorney or other statement. Free tax efile Attach a signed statement to your return explaining that your spouse is serving in a combat zone. Free tax efile For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, see Publication 3, Armed Forces' Tax Guide. Free tax efile Other reasons spouse cannot sign. Free tax efile    If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). Free tax efile Attach the power of attorney (or a copy of it) to your tax return. Free tax efile You can use Form 2848, Power of Attorney and Declaration of Representative. Free tax efile Nonresident alien or dual-status alien. Free tax efile   Generally, a married couple cannot file a joint return if either one is a nonresident alien at any time during the tax year. Free tax efile However, if one spouse was a nonresident alien or dual-status alien who was married to a U. Free tax efile S. Free tax efile citizen or resident alien at the end of the year, the spouses can choose to file a joint return. Free tax efile If you do file a joint return, you and your spouse are both treated as U. Free tax efile S. Free tax efile residents for the entire tax year. Free tax efile See chapter 1 of Publication 519. Free tax efile Married Filing Separately You can choose married filing separately as your filing status if you are married. Free tax efile This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. Free tax efile If you and your spouse do not agree to file a joint return, you must use this filing status unless you qualify for head of household status, discussed later. Free tax efile You may be able to choose head of household filing status if you are considered unmarried because you live apart from your spouse and meet certain tests (explained later, under Head of Household ). Free tax efile This can apply to you even if you are not divorced or legally separated. Free tax efile If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. Free tax efile The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. Free tax efile See Head of Household , later, for more information. Free tax efile You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules, later. Free tax efile However, unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). Free tax efile This way you can make sure you are using the filing status that results in the lowest combined tax. Free tax efile When figuring the combined tax of a married couple, you may want to consider state taxes as well as federal taxes. Free tax efile How to file. Free tax efile   If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. Free tax efile You can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another person. Free tax efile You can file Form 1040. Free tax efile If your taxable income is less than $100,000, you may be able to file Form 1040A. Free tax efile Select this filing status by checking the box on line 3 of either form. Free tax efile Enter your spouse's full name and SSN or ITIN in the spaces provided. Free tax efile If your spouse does not have and is not required to have an SSN or ITIN, enter “NRA” in the space for your spouse's SSN. Free tax efile Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax. Free tax efile Special Rules If you choose married filing separately as your filing status, the following special rules apply. Free tax efile Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for. Free tax efile   Your tax rate generally is higher than on a joint return. Free tax efile Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. Free tax efile You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000). Free tax efile If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Free tax efile For more information about these expenses, the credit, and the exclusion, see chapter 32. Free tax efile You cannot take the earned income credit. Free tax efile You cannot take the exclusion or credit for adoption expenses in most cases. Free tax efile You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction. Free tax efile You cannot exclude any interest income from qualified U. Free tax efile S. Free tax efile savings bonds you used for higher education expenses. Free tax efile If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received. Free tax efile The following credits and deductions are reduced at income levels half those for a joint return: The child tax credit, The retirement savings contributions credit, The deduction for personal exemptions, and Itemized deductions. Free tax efile Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Free tax efile If your spouse itemizes deductions, you cannot claim the standard deduction. Free tax efile If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return. Free tax efile Adjusted gross income (AGI) limits. Free tax efile   If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses. Free tax efile Individual retirement arrangements (IRAs). Free tax efile   You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Free tax efile Your deduction is reduced or eliminated if your income is more than a certain amount. Free tax efile This amount is much lower for married individuals who file separately and lived together at any time during the year. Free tax efile For more information, see How Much Can You Deduct in chapter 17. Free tax efile Rental activity losses. Free tax efile   If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income, up to $25,000. Free tax efile This is called a special allowance. Free tax efile However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Free tax efile Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. Free tax efile See Limits on Rental Losses in chapter 9. Free tax efile Community property states. Free tax efile   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. Free tax efile See Publication 555. Free tax efile Joint Return After Separate Returns You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040X. Free tax efile You generally can change to a joint return any time within 3 years from the due date of the separate return or returns. Free tax efile This does not include any extensions. Free tax efile A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status. Free tax efile Separate Returns After Joint Return Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. Free tax efile Exception. Free tax efile   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Free tax efile The personal representative has 1 year from the due date of the return (including extensions) to make the change. Free tax efile See Publication 559, Survivors, Executors, and Administrators, for more information on filing a return for a decedent. Free tax efile Head of Household You may be able to file as head of household if you meet all the following requirements. Free tax efile You are unmarried or “considered unmarried” on the last day of the year. Free tax efile See Marital Status , earlier, and Considered Unmarried , later. Free tax efile You paid more than half the cost of keeping up a home for the year. Free tax efile A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). Free tax efile However, if the qualifying person is your dependent parent, he or she does not have to live with you. Free tax efile See Special rule for parent , later, under Qualifying Person. Free tax efile If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. Free tax efile You will also receive a higher standard deduction than if you file as single or married filing separately. Free tax efile Kidnapped child. Free tax efile   A child may qualify you to file as head of household even if the child has been kidnapped. Free tax efile For more information, see Publication 501. Free tax efile How to file. Free tax efile   If you file as head of household, you can use Form 1040. Free tax efile If your taxable income is less than $100,000, you may be able to file Form 1040A. Free tax efile Indicate your choice of this filing status by checking the box on line 4 of either form. Free tax efile Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax. Free tax efile Considered Unmarried To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year. Free tax efile You are considered unmarried on the last day of the tax year if you meet all the following tests. Free tax efile You file a separate return (defined earlier under Joint Return After Separate Returns ). Free tax efile You paid more than half the cost of keeping up your home for the tax year. Free tax efile Your spouse did not live in your home during the last 6 months of the tax year. Free tax efile Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Free tax efile See Temporary absences , under Qualifying Person, later. Free tax efile Your home was the main home of your child, stepchild, or foster child for more than half the year. Free tax efile (See Home of qualifying person , under Qualifying Person, later, for rules applying to a child's birth, death, or temporary absence during the year. Free tax efile ) You must be able to claim an exemption for the child. Free tax efile However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described in Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3, or in Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) under Qualifying Relative in chapter 3. Free tax efile The general rules for claiming an exemption for a dependent are explained under Exemptions for Dependents in chapter 3. Free tax efile If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately), special rules may apply in determining your income and expenses. Free tax efile See Publication 555 for more information. Free tax efile Nonresident alien spouse. Free tax efile   You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. Free tax efile However, your spouse is not a qualifying person for head of household purposes. Free tax efile You must have another qualifying person and meet the other tests to be eligible to file as a head of household. Free tax efile Choice to treat spouse as resident. Free tax efile   You are considered married if you choose to treat your spouse as a resident alien. Free tax efile See Publication 519. Free tax efile Keeping Up a Home To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. Free tax efile You can determine whether you paid more than half of the cost of keeping up a home by using Worksheet 2–1. Free tax efile Worksheet 2-1. Free tax efile Cost of Keeping Up a Home   Amount You Paid Total Cost Property taxes $ $ Mortgage interest expense     Rent     Utility charges     Repairs/maintenance     Property insurance     Food consumed on the premises     Other household expenses     Totals $ $ Minus total amount you paid   () Amount others paid   $ If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home. Free tax efile Costs you include. Free tax efile   Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Free tax efile   If you used payments you received under Temporary Assistance for Needy Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. Free tax efile However, you must include them in the total cost of keeping up your home to figure if you paid over half the cost. Free tax efile Costs you do not include. Free tax efile   Do not include the costs of clothing, education, medical treatment, vacations, life insurance, or transportation. Free tax efile Also, do not include the rental value of a home you own or the value of your services or those of a member of your household. Free tax efile Qualifying Person See Table 2-1 to see who is a qualifying person. Free tax efile Any person not described in Table 2-1 is not a qualifying person. Free tax efile Table 2-1. Free tax efile Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Free tax efile See the text of this chapter for the other requirements you must meet to claim head of household filing status. Free tax efile IF the person is your . Free tax efile . Free tax efile . Free tax efile   AND . Free tax efile . Free tax efile . Free tax efile   THEN that person is . Free tax efile . Free tax efile . Free tax efile qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2   he or she is single   a qualifying person, whether or not you can claim an exemption for the person. Free tax efile   he or she is married and you can claim an exemption for him or her   a qualifying person. Free tax efile   he or she is married and you cannot claim an exemption for him or her   not a qualifying person. Free tax efile 3 qualifying relative4 who is your father or mother   you can claim an exemption for him or her5   a qualifying person. Free tax efile 6   you cannot claim an exemption for him or her   not a qualifying person. Free tax efile qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests)   he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and you can claim an exemption for him or her5   a qualifying person. Free tax efile   he or she did not live with you more than half the year   not a qualifying person. Free tax efile   he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and is your qualifying relative only because he or she lived with you all year as a member of your household   not a qualifying person. Free tax efile   you cannot claim an exemption for him or her   not a qualifying person. Free tax efile 1A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Free tax efile 2The term “qualifying child” is defined in chapter 3. Free tax efile Note. Free tax efile If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3. Free tax efile If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Free tax efile 3This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Free tax efile 4The term “ qualifying relative ” is defined in chapter 3. Free tax efile 5If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Free tax efile See Multiple Support Agreement in chapter 3. Free tax efile 6See Special rule for parent . Free tax efile Example 1—child. Free tax efile Your unmarried son lived with you all year and was 18 years old at the end of the year. Free tax efile He did not provide more than half of his own support and does not meet the tests to be a qualifying child of anyone else. Free tax efile As a result, he is your qualifying child (see Qualifying Child in chapter 3) and, because he is single, your qualifying person for you to claim head of household filing status. Free tax efile Example 2—child who is not qualifying person. Free tax efile The facts are the same as in Example 1 except your son was 25 years old at the end of the year and his gross income was $5,000. Free tax efile Because he does not meet the age test (explained under Qualifying Child in chapter 3), your son is not your qualifying child. Free tax efile Because he does not meet the gross income test (explained later under Qualifying Relative in chapter 3), he is not your qualifying relative. Free tax efile As a result, he is not your qualifying person for head of household purposes. Free tax efile Example 3—girlfriend. Free tax efile Your girlfriend lived with you all year. Free tax efile Even though she may be your qualifying relative if the gross income and support tests (explained in chapter 3) are met, she is not your qualifying person for head of household purposes because she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3. Free tax efile See Table 2-1. Free tax efile Example 4—girlfriend's child. Free tax efile The facts are the same as in Example 3 except your girlfriend's 10-year-old son also lived with you all year. Free tax efile He is not your qualifying child and, because he is your girlfriend's qualifying child, he is not your qualifying relative (see Not a Qualifying Child Test in chapter 3). Free tax efile As a result, he is not your qualifying person for head of household purposes. Free tax efile Home of qualifying person. Free tax efile   Generally, the qualifying person must live with you for more than half of the year. Free tax efile Special rule for parent. Free tax efile   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Free tax efile However, you must be able to claim an exemption for your father or mother. Free tax efile Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Free tax efile   You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Free tax efile Death or birth. Free tax efile   You may be eligible to file as head of household even if the individual who qualifies you for this filing status is born or dies during the year. Free tax efile If the individual is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Free tax efile If the individual is anyone else, see Publication 501. Free tax efile Temporary absences. Free tax efile   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Free tax efile It must be reasonable to assume the absent person will return to the home after the temporary absence. Free tax efile You must continue to keep up the home during the absence. Free tax efile Qualifying Widow(er) With Dependent Child If your spouse died in 2013, you can use married filing jointly as your filing status for 2013 if you otherwise qualify to use that status. Free tax efile The year of death is the last year for which you can file jointly with your deceased spouse. Free tax efile See Married Filing Jointly , earlier. Free tax efile You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. Free tax efile For example, if your spouse died in 2012, and you have not remarried, you may be able to use this filing status for 2013 and 2014. Free tax efile This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). Free tax efile It does not entitle you to file a joint return. Free tax efile How to file. Free tax efile   If you file as qualifying widow(er) with dependent child, you can use Form 1040. Free tax efile If you also have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. Free tax efile Check the box on line 5 of either form. Free tax efile Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Free tax efile Eligibility rules. Free tax efile   You are eligible to file your 2013 return as a qualifying widow(er) with dependent child if you meet all of the following tests. Free tax efile You were entitled to file a joint return with your spouse for the year your spouse died. Free tax efile It does not matter whether you actually filed a joint return. Free tax efile Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Free tax efile You have a child or stepchild for whom you can claim an exemption. Free tax efile This does not include a foster child. Free tax efile This child lived in your home all year, except for temporary absences. Free tax efile See Temporary absences , earlier, under Head of Household. Free tax efile There are also exceptions, described later, for a child who was born or died during the year and for a kidnapped child. Free tax efile You paid more than half the cost of keeping up a home for the year. Free tax efile See Keeping Up a Home , earlier, under Head of Household. Free tax efile Example. Free tax efile John's wife died in 2011. Free tax efile John has not remarried. Free tax efile During 2012 and 2013, he continued to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. Free tax efile For 2011 he was entitled to file a joint return for himself and his deceased wife. Free tax efile For 2012 and 2013, he can file as qualifying widower with a dependent child. Free tax efile After 2013 he can file as head of household if he qualifies. Free tax efile Death or birth. Free tax efile    You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. Free tax efile You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive. Free tax efile Kidnapped child. Free tax efile   A child may qualify you for qualifying widow(er) with dependent child, even if the child has been kidnapped. Free tax efile See Publication 501. Free tax efile    As mentioned earlier, this filing status is available for only 2 years following the year your spouse died. Free tax efile Prev  Up  Next   Home   More Online Publications
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The Free Tax Efile

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