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H and r block file free 3. H and r block file free   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. H and r block file free Other income (nonpassive income). H and r block file free Expenses. H and r block file free Additional information. H and r block file free Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. H and r block file free Basis. H and r block file free How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. H and r block file free Including mutual fund or REMIC expenses in income. H and r block file free Nondeductible ExpensesUsed as collateral. H and r block file free Short-sale expenses. H and r block file free Expenses for both tax-exempt and taxable income. H and r block file free State income taxes. H and r block file free Nondeductible amount. H and r block file free Basis adjustment. H and r block file free How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . H and r block file free Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. H and r block file free Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. H and r block file free The at-risk rules and passive activity rules are explained briefly in this section. H and r block file free The limit on investment interest is explained later in this chapter under Interest Expenses . H and r block file free The 2% limit is explained later in this chapter under Expenses of Producing Income . H and r block file free At-risk rules. H and r block file free   Special at-risk rules apply to most income-producing activities. H and r block file free These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. H and r block file free Generally, this is the cash and the adjusted basis of property you contribute to the activity. H and r block file free It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. H and r block file free For more information, see Publication 925. H and r block file free Passive activity losses and credits. H and r block file free   The amount of losses and tax credits you can claim from passive activities is limited. H and r block file free Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. H and r block file free Also, you can use credits from passive activities only against tax on the income from passive activities. H and r block file free There are exceptions for certain activities, such as rental real estate activities. H and r block file free Passive activity. H and r block file free   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. H and r block file free However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. H and r block file free More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. H and r block file free You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. H and r block file free  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. H and r block file free However, it does not include rental activities or certain activities treated as incidental to holding property for investment. H and r block file free   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. H and r block file free Other income (nonpassive income). H and r block file free    Generally, you can use losses from passive activities only to offset income from passive activities. H and r block file free You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. H and r block file free Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. H and r block file free It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. H and r block file free This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. H and r block file free   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. H and r block file free Expenses. H and r block file free   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. H and r block file free However, this interest and other expenses may be subject to other limits. H and r block file free These limits are explained in the rest of this chapter. H and r block file free Additional information. H and r block file free   For more information about determining and reporting income and losses from passive activities, see Publication 925. H and r block file free Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. H and r block file free For information on business interest, see chapter 4 of Publication 535. H and r block file free You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. H and r block file free Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. H and r block file free You can deduct investment interest subject to the limit discussed later. H and r block file free However, you cannot deduct interest you incurred to produce tax-exempt income. H and r block file free See Tax-exempt income under Nondeductible Expenses, later. H and r block file free You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. H and r block file free Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. H and r block file free Investment property. H and r block file free   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. H and r block file free It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). H and r block file free Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). H and r block file free Partners, shareholders, and beneficiaries. H and r block file free   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. H and r block file free Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. H and r block file free Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. H and r block file free The allocation is not affected by the use of property that secures the debt. H and r block file free Example 1. H and r block file free You borrow $10,000 and use $8,000 to buy stock. H and r block file free You use the other $2,000 to buy items for your home. H and r block file free Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. H and r block file free The other 20% is nondeductible personal interest. H and r block file free Debt proceeds received in cash. H and r block file free   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. H and r block file free Debt proceeds deposited in account. H and r block file free   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. H and r block file free But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. H and r block file free Example 2. H and r block file free Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. H and r block file free You did not buy the household items until June 1. H and r block file free You had deposited the $2,000 in the bank. H and r block file free You had no other transactions on the bank account until June. H and r block file free You did not sell the stock, and you made no principal payments on the debt. H and r block file free You paid interest from another account. H and r block file free The $8,000 is treated as being used for an investment purpose. H and r block file free The $2,000 is treated as being used for an investment purpose for the 3-month period. H and r block file free Your total interest expense for 3 months on this debt is investment interest. H and r block file free In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. H and r block file free Amounts paid within 30 days. H and r block file free   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. H and r block file free This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. H and r block file free   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. H and r block file free Payments on debt may require new allocation. H and r block file free   As you repay a debt used for more than one purpose, you must reallocate the balance. H and r block file free You must first reduce the amount allocated to personal purposes by the repayment. H and r block file free You then reallocate the rest of the debt to find what part is for investment purposes. H and r block file free Example 3. H and r block file free If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. H and r block file free The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. H and r block file free Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. H and r block file free Pass-through entities. H and r block file free   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. H and r block file free If you contribute to the capital of the entity, you can make the allocation using any reasonable method. H and r block file free Additional allocation rules. H and r block file free   For more information about allocating interest expense, see chapter 4 of Publication 535. H and r block file free When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. H and r block file free If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. H and r block file free For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. H and r block file free Example. H and r block file free You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. H and r block file free On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. H and r block file free If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. H and r block file free If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. H and r block file free Interest paid in advance. H and r block file free   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. H and r block file free You can deduct in each year only the interest for that year. H and r block file free Interest on margin accounts. H and r block file free   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. H and r block file free You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. H and r block file free Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. H and r block file free   You cannot deduct any interest on money borrowed for personal reasons. H and r block file free Limit on interest deduction for market discount bonds. H and r block file free   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. H and r block file free This limit does not apply if you accrue the market discount and include it in your income currently. H and r block file free   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. H and r block file free Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . H and r block file free Interest not deducted due to limit. H and r block file free   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. H and r block file free Choosing to deduct disallowed interest expense before the year of disposition. H and r block file free   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. H and r block file free The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. H and r block file free Net interest income. H and r block file free   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. H and r block file free Limit on interest deduction for short-term obligations. H and r block file free   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. H and r block file free   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). H and r block file free The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . H and r block file free Interest not deducted due to limit. H and r block file free   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. H and r block file free Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. H and r block file free Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. H and r block file free You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. H and r block file free The interest carried over is treated as investment interest paid or accrued in that next year. H and r block file free You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. H and r block file free Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. H and r block file free Investment income. H and r block file free   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). H and r block file free Investment income does not include Alaska Permanent Fund dividends. H and r block file free It also does not include qualified dividends or net capital gain unless you choose to include them. H and r block file free Choosing to include qualified dividends. H and r block file free   Investment income generally does not include qualified dividends, discussed in chapter 1. H and r block file free However, you can choose to include all or part of your qualified dividends in investment income. H and r block file free   You make this choice by completing Form 4952, line 4g, according to its instructions. H and r block file free   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. H and r block file free Choosing to include net capital gain. H and r block file free    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). H and r block file free However, you can choose to include all or part of your net capital gain in investment income. H and r block file free   You make this choice by completing Form 4952, line 4g, according to its instructions. H and r block file free   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. H and r block file free   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. H and r block file free    Before making either choice, consider the overall effect on your tax liability. H and r block file free Compare your tax if you make one or both of these choices with your tax if you do not. H and r block file free Investment income of child reported on parent's return. H and r block file free   Investment income includes the part of your child's interest and dividend income you choose to report on your return. H and r block file free If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. H and r block file free Include it on line 4a of Form 4952. H and r block file free Example. H and r block file free Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. H and r block file free You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. H and r block file free Also enter $200 on Form 1040, line 21. H and r block file free Your investment income includes this $200. H and r block file free Child's qualified dividends. H and r block file free   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. H and r block file free However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. H and r block file free   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). H and r block file free Child's Alaska Permanent Fund dividends. H and r block file free   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. H and r block file free To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. H and r block file free Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. H and r block file free Subtract the result from the amount on Form 8814, line 12. H and r block file free Example. H and r block file free Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. H and r block file free You choose to report this on your return. H and r block file free You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. H and r block file free You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. H and r block file free You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. H and r block file free Child's capital gain distributions. H and r block file free   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. H and r block file free However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. H and r block file free   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). H and r block file free Investment expenses. H and r block file free   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. H and r block file free Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. H and r block file free Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. H and r block file free See Expenses of Producing Income , later, for a discussion of the 2% limit. H and r block file free Losses from passive activities. H and r block file free   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). H and r block file free See Publication 925 for information about passive activities. H and r block file free Example. H and r block file free Ted is a partner in a partnership that operates a business. H and r block file free However, he does not materially participate in the partnership's business. H and r block file free Ted's interest in the partnership is considered a passive activity. H and r block file free Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. H and r block file free His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. H and r block file free His investment interest expense is $8,000. H and r block file free Ted also has income from the partnership of $2,000. H and r block file free Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. H and r block file free His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. H and r block file free Form 4952 Use Form 4952 to figure your deduction for investment interest. H and r block file free See Form 4952 for more information. H and r block file free Exception to use of Form 4952. H and r block file free   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. H and r block file free Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. H and r block file free You do not have any other deductible investment expenses. H and r block file free You have no carryover of investment interest expense from 2012. H and r block file free   If you meet all of these tests, you can deduct all of your investment interest. H and r block file free    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. H and r block file free If the bond yields taxable interest, you can choose to amortize the premium. H and r block file free This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. H and r block file free If you make this choice, you must reduce your basis in the bond by the amortization for the year. H and r block file free If the bond yields tax-exempt interest, you must amortize the premium. H and r block file free This amortized amount is not deductible in determining taxable income. H and r block file free However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. H and r block file free Bond premium. H and r block file free   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). H and r block file free For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. H and r block file free Special rules to determine amounts payable on a bond. H and r block file free   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. H and r block file free 171-3. H and r block file free Basis. H and r block file free   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. H and r block file free However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. H and r block file free See Regulations section 1. H and r block file free 171-1(e). H and r block file free Dealers. H and r block file free   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. H and r block file free   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. H and r block file free How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. H and r block file free Constant yield method. H and r block file free   Figure the bond premium amortization for each accrual period as follows. H and r block file free Step 1: Determine your yield. H and r block file free   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. H and r block file free Figure the yield as of the date you got the bond. H and r block file free It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. H and r block file free   If you do not know the yield, consult your broker or tax advisor. H and r block file free Databases available to them are likely to show the yield at the date of purchase. H and r block file free Step 2: Determine the accrual periods. H and r block file free   You can choose the accrual periods to use. H and r block file free They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. H and r block file free The computation is simplest if accrual periods are the same as the intervals between interest payment dates. H and r block file free Step 3: Determine the bond premium for the accrual period. H and r block file free   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. H and r block file free Then subtract the result from the qualified stated interest for the period. H and r block file free   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. H and r block file free After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. H and r block file free Example. H and r block file free On February 1, 2012, you bought a taxable bond for $110,000. H and r block file free The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). H and r block file free The bond pays qualified stated interest of $10,000 on February 1 of each year. H and r block file free Your yield is 8. H and r block file free 07439% compounded annually. H and r block file free You choose to use annual accrual periods ending on February 1 of each year. H and r block file free To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. H and r block file free When you subtract the result ($8,881. H and r block file free 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. H and r block file free 17. H and r block file free Special rules to figure amortization. H and r block file free   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. H and r block file free 171-3. H and r block file free Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. H and r block file free Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. H and r block file free Straight-line method. H and r block file free   Under this method, the amount of your bond premium amortization is the same each month. H and r block file free Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. H and r block file free Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). H and r block file free This gives you your bond premium amortization for the year. H and r block file free Revenue Ruling 82-10 method. H and r block file free   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. H and r block file free This method is explained in Revenue Ruling 82-10, 1982-1 C. H and r block file free B. H and r block file free 46. H and r block file free Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. H and r block file free You should attach a statement to your return that you are making this choice under section 171. H and r block file free See How To Report Amortization, next. H and r block file free This choice is binding for the year you make it and for later tax years. H and r block file free It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. H and r block file free You can change your decision to amortize bond premium only with the written approval of the IRS. H and r block file free To request approval, use Form 3115. H and r block file free For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. H and r block file free You can find Revenue Procedure 2011-14 at www. H and r block file free irs. H and r block file free gov/irb/2011-04_IRB/ar08. H and r block file free html. H and r block file free How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. H and r block file free Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. H and r block file free Under your last entry on line 1, put a subtotal of all interest listed on line 1. H and r block file free Below this subtotal, print “ABP Adjustment,” and the total interest you received. H and r block file free Subtract this amount from the subtotal, and enter the result on line 2. H and r block file free Bond premium amortization more than interest. H and r block file free   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. H and r block file free    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. H and r block file free Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. H and r block file free Pre-1998 election to amortize bond premium. H and r block file free   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. H and r block file free Bonds acquired before October 23, 1986. H and r block file free   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. H and r block file free Bonds acquired after October 22, 1986, but before 1988. H and r block file free    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. H and r block file free Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). H and r block file free To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. H and r block file free The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. H and r block file free The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. H and r block file free The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. H and r block file free For information on how to report expenses of producing income, see How To Report Investment Expenses , later. H and r block file free Attorney or accounting fees. H and r block file free   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. H and r block file free However, in some cases, attorney or accounting fees are part of the basis of property. H and r block file free See Basis of Investment Property in chapter 4. H and r block file free Automatic investment service and dividend reinvestment plans. H and r block file free   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. H and r block file free Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. H and r block file free Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. H and r block file free   A corporation in which you own stock also may have a dividend reinvestment plan. H and r block file free This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. H and r block file free   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. H and r block file free If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. H and r block file free Deduct the charges in the year you pay them. H and r block file free Clerical help and office rent. H and r block file free   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. H and r block file free Cost of replacing missing securities. H and r block file free   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. H and r block file free You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. H and r block file free   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. H and r block file free Under certain types of insurance policies, you can recover some of the expenses. H and r block file free   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. H and r block file free If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. H and r block file free Fees to collect income. H and r block file free   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. H and r block file free Fees to buy or sell. H and r block file free   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. H and r block file free You must add the fee to the cost of the property. H and r block file free See Basis of Investment Property in chapter 4. H and r block file free    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. H and r block file free They can be used only to figure gain or loss from the sale. H and r block file free See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. H and r block file free Investment counsel and advice. H and r block file free   You can deduct fees you pay for counsel and advice about investments that produce taxable income. H and r block file free This includes amounts you pay for investment advisory services. H and r block file free Safe deposit box rent. H and r block file free   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. H and r block file free If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. H and r block file free See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. H and r block file free State and local transfer taxes. H and r block file free   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. H and r block file free If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. H and r block file free If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. H and r block file free Trustee's commissions for revocable trust. H and r block file free   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. H and r block file free However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. H and r block file free   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. H and r block file free You cannot deduct the entire amount in the year you pay it. H and r block file free Investment expenses from pass-through entities. H and r block file free   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. H and r block file free A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). H and r block file free A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). H and r block file free Publicly-offered mutual funds are discussed later. H and r block file free   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. H and r block file free Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). H and r block file free   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. H and r block file free Including mutual fund or REMIC expenses in income. H and r block file free   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. H and r block file free You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. H and r block file free If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). H and r block file free If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. H and r block file free If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. H and r block file free Publicly-offered mutual funds. H and r block file free   Most mutual funds are publicly offered. H and r block file free These mutual funds, generally, are traded on an established securities exchange. H and r block file free These funds do not pass investment expenses through to you. H and r block file free Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. H and r block file free As a result, you cannot deduct the expenses on your return. H and r block file free   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. H and r block file free    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. H and r block file free Contact your mutual fund if you are not sure whether it is publicly offered. H and r block file free Nondeductible Expenses Some expenses that you incur as an investor are not deductible. H and r block file free Stockholders' meetings. H and r block file free   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. H and r block file free This is true even if your purpose in attending is to get information that would be useful in making further investments. H and r block file free Investment-related seminar. H and r block file free   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. H and r block file free Single-premium life insurance, endowment, and annuity contracts. H and r block file free   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. H and r block file free Used as collateral. H and r block file free   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. H and r block file free Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. H and r block file free Borrowing on insurance. H and r block file free   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. H and r block file free This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. H and r block file free Tax-exempt income. H and r block file free   You cannot deduct expenses you incur to produce tax-exempt income. H and r block file free Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. H and r block file free Short-sale expenses. H and r block file free   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. H and r block file free However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. H and r block file free Short sales are discussed in Short Sales in chapter 4. H and r block file free Expenses for both tax-exempt and taxable income. H and r block file free   You may have expenses that are for both tax-exempt and taxable income. H and r block file free If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. H and r block file free You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. H and r block file free   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. H and r block file free If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. H and r block file free To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. H and r block file free Example. H and r block file free You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. H and r block file free In earning this income, you had $500 of expenses. H and r block file free You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. H and r block file free 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. H and r block file free You cannot deduct $400 (80% of $500) of the expenses. H and r block file free You can deduct $100 (the rest of the expenses) because they are for the taxable interest. H and r block file free State income taxes. H and r block file free   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. H and r block file free But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. H and r block file free Interest expense and carrying charges on straddles. H and r block file free   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. H and r block file free The nondeductible interest and carrying charges are added to the basis of the straddle property. H and r block file free However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. H and r block file free  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. H and r block file free   Interest includes any amount you pay or incur in connection with personal property used in a short sale. H and r block file free However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. H and r block file free   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). H and r block file free Nondeductible amount. H and r block file free   Figure the nondeductible interest and carrying charges on straddle property as follows. H and r block file free Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. H and r block file free Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. H and r block file free Basis adjustment. H and r block file free   Add the nondeductible amount to the basis of your straddle property. H and r block file free How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). H and r block file free Enter your deductible investment interest expense on Schedule A (Form1040), line 14. H and r block file free Include any deductible short sale expenses. H and r block file free (See Short Sales in chapter 4 for information on these expenses. H and r block file free ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. H and r block file free Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. H and r block file free List the type and amount of each expense on the dotted lines next to line 23. H and r block file free (If necessary, you can show the required information on an attached statement. H and r block file free ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. H and r block file free When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. H and r block file free If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. H and r block file free Also see When To Deduct Investment Interest , earlier in this chapter. H and r block file free Unpaid expenses owed to related party. H and r block file free   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. H and r block file free The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. H and r block file free If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. H and r block file free   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . H and r block file free It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. H and r block file free   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. H and r block file free This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. H and r block file free Prev  Up  Next   Home   More Online Publications
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The H And R Block File Free

H and r block file free Publication 334 - Introductory Material Table of Contents IntroductionOrdering forms and publications. H and r block file free Tax questions. H and r block file free Future Developments What's New for 2013 What's New for 2014 Reminders Photographs of Missing Children Introduction The purpose of this publication is to provide general information about the federal tax laws that apply to small business owners who are sole proprietors and to statutory employees. H and r block file free This publication has information on business income, expenses, and tax credits that may help you file your income tax return. H and r block file free Are you self-employed?   You are self-employed if you carry on a trade or business as a sole proprietor or an independent contractor. H and r block file free Sole proprietor. H and r block file free   A sole proprietor is someone who owns an unincorporated business by himself or herself. H and r block file free However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. H and r block file free Trade or business. H and r block file free    A trade or business is generally an activity carried on to make a profit. H and r block file free The facts and circumstances of each case determine whether or not an activity is a trade or business. H and r block file free You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. H and r block file free You do need to make ongoing efforts to further the interests of your business. H and r block file free   You do not have to carry on regular full-time business activities to be self-employed. H and r block file free Having a part-time business in addition to your regular job or business may be self-employment. H and r block file free Independent contractor. H and r block file free    People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. H and r block file free However, whether they are independent contractors or employees depends on the facts in each case. H and r block file free The general rule is that an individual is an independent contractor if the payer has the right to control or to direct only the result of the work and not how it will be done. H and r block file free The earnings of a person who is working as an independent contractor are subject to self-employment tax. H and r block file free For more information on determining whether you are an employee or independent contractor, see Publication 15-A, Employer's Supplemental Tax Guide. H and r block file free Statutory employee. H and r block file free   A statutory employee has a checkmark in box 13 of his or her Form W-2, Wage and Tax Statement. H and r block file free Statutory employees use Schedule C or C-EZ to report their wages and expenses. H and r block file free Limited liability company (LLC). H and r block file free   A limited liability company (LLC) is an entity formed under state law by filing articles of organization. H and r block file free Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. H and r block file free An owner who is an individual may use Schedule C or C-EZ. H and r block file free Business owned and operated by spouses. H and r block file free   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. H and r block file free Do not use Schedule C or C-EZ. H and r block file free Instead, file Form 1065, U. H and r block file free S. H and r block file free Return of Partnership Income. H and r block file free For more information, see Publication 541, Partnerships. H and r block file free    Exception—Community income. H and r block file free If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. H and r block file free S. H and r block file free possession, you can treat the business either as a sole proprietorship or a partnership. H and r block file free The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. H and r block file free A change in your reporting position will be treated as a conversion of the entity. H and r block file free    Exception—Qualified joint venture. H and r block file free If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. H and r block file free Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. H and r block file free For an explanation of "material participation," see the Instructions for Schedule C, line G. H and r block file free   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. H and r block file free Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. H and r block file free For more information, see Qualified Joint Ventures in the Instructions for Schedule SE. H and r block file free This publication does not cover the topics listed in the following table. H and r block file free    IF you need information about: THEN you should see: Corporations Publication 542 Farming Publication 225 Fishermen (Capital Construction Fund)  Publication 595 Partnerships Publication 541 Passive activities Publication 925 Recordkeeping Publication 583 Rental Publication 527 S corporations Instructions for Form 1120S What you need to know. H and r block file free   Table A provides a list of questions you need to answer to help you meet your federal tax obligations. H and r block file free After each question is the location in this publication where you will find the related discussion. H and r block file free Table A. H and r block file free What You Need To Know About Federal Taxes (Note. H and r block file free The following is a list of questions you may need to answer so you can fill out your federal income tax return. H and r block file free Chapters are given to help you find the related discussion in this publication. H and r block file free ) What must I know   Where to find the answer   What kinds of federal taxes do I have to pay? How do I pay them?   See chapter 1. H and r block file free What forms must I file?   See chapter 1. H and r block file free What must I do if I have employees?   See Employment Taxes in chapter 1. H and r block file free Do I have to start my tax year in January, or can I start it in any other month?   See Accounting Periods in chapter 2. H and r block file free What method can I use to account for my income and expenses?   See Accounting Methods in chapter 2. H and r block file free What kinds of business income do I have to report on my tax return?   See chapter 5. H and r block file free What kinds of business expenses can I deduct on my tax return?   See Business Expenses in chapter 8. H and r block file free What kinds of expenses are not deductible as business expenses?   See Expenses You Cannot Deduct in chapter 8. H and r block file free What happens if I have a business loss? Can I deduct it?   See chapter 9. H and r block file free What must I do if I disposed of business property during the year?   See chapter 3. H and r block file free What are my rights as a taxpayer?   See chapter 11. H and r block file free Where do I go if I need help with federal tax matters?   See chapter 12. H and r block file free IRS mission. H and r block file free   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. H and r block file free Comments and suggestions. H and r block file free   We welcome your comments about this publication and your suggestions for future editions. H and r block file free   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H and r block file free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H and r block file free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H and r block file free   You can send your comments from www. H and r block file free irs. H and r block file free gov/formspubs/. H and r block file free Click on “More Information” then on “Comment on Tax Forms and Publications. H and r block file free ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H and r block file free Ordering forms and publications. H and r block file free   Visit  www. H and r block file free irs. H and r block file free gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. H and r block file free  Internal Revenue Service 1201 N. H and r block file free Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H and r block file free   If you have a tax question, check the information available on IRS. H and r block file free gov or call 1-800-829-1040. H and r block file free We cannot answer tax questions sent to either of the above addresses. H and r block file free Future Developments For the latest information about developments related to Publication 334, such as legislation enacted after it was published, go to www. H and r block file free irs. H and r block file free gov/pub334. H and r block file free What's New for 2013 The following are some of the tax changes for 2013. H and r block file free For information on other changes, go to IRS. H and r block file free gov. H and r block file free Tax rates. H and r block file free . H and r block file free  For tax years beginning in 2013, the social security part of the self-employment tax increases to 12. H and r block file free 4%. H and r block file free The Medicare part of the tax remains at 2. H and r block file free 9%. H and r block file free As a result, the self-employment tax is 15. H and r block file free 3%. H and r block file free Maximum net earnings. H and r block file free  The maximum net self-employment earnings subject to the social security part of the self-employment tax increases to $113,700 for 2013. H and r block file free There is no maximum limit on earnings subject to the Medicare part. H and r block file free Standard mileage rate. H and r block file free  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. H and r block file free 5 cents per mile. H and r block file free For more information, see Car and Truck Expenses in chapter 8. H and r block file free Simplified method for business use of home deduction. H and r block file free . H and r block file free  The IRS now provides a simplified method to determine your expenses for business use of your home. H and r block file free For more information, see Business Use of Your Home in chapter 8. H and r block file free What's New for 2014 The following are some of the tax changes for 2014. H and r block file free For information on other changes, go to IRS. H and r block file free gov. H and r block file free Standard mileage rate. H and r block file free  For 2014, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56 cents per mile. H and r block file free Self-employment tax. H and r block file free  The maximum net self-employment earnings subject to the social security part of the self-employment tax is $117,000 for 2014. H and r block file free Reminders Accounting methods. H and r block file free  Certain small business taxpayers may be eligible to adopt or change to the cash method of accounting and may not be required to account for inventories. H and r block file free For more information, see Inventories in chapter 2. H and r block file free Reportable transactions. H and r block file free  You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. H and r block file free You may have to pay a penalty if you are required to file Form 8886 but do not do so. H and r block file free You may also have to pay interest and penalties on any reportable transaction understatements. H and r block file free Reportable transactions include: Transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, Transactions offered to you under conditions of confidentiality for which you paid an advisor a minimum fee, Transactions for which you have, or a related party has, contractual protection against disallowance of the tax benefits, Transactions that result in losses of at least $2 million in any single tax year ($50,000 if from certain foreign currency transactions) or $4 million in any combination of tax years, and Transactions the same or substantially similar to one of the types of transactions the IRS has identified as a transaction of interest. H and r block file free For more information, see the Instructions for Form 8886. H and r block file free Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H and r block file free Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H and r block file free You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H and r block file free Prev  Up  Next   Home   More Online Publications