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How To File A 2012 Tax Return

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How To File A 2012 Tax Return

How to file a 2012 tax return 26. How to file a 2012 tax return   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. How to file a 2012 tax return Parking fees. How to file a 2012 tax return Advertising display on car. How to file a 2012 tax return Car pools. How to file a 2012 tax return Hauling tools or instruments. How to file a 2012 tax return Union members' trips from a union hall. How to file a 2012 tax return Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. How to file a 2012 tax return Statutory employees. How to file a 2012 tax return Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. How to file a 2012 tax return  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. How to file a 2012 tax return Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. How to file a 2012 tax return Depreciation limits on cars, trucks, and vans. How to file a 2012 tax return  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). How to file a 2012 tax return For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). How to file a 2012 tax return For more information, see Depreciation limits in Publication 463. How to file a 2012 tax return Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. How to file a 2012 tax return An ordinary expense is one that is common and accepted in your trade or business. How to file a 2012 tax return A necessary expense is one that is helpful and appropriate for your business. How to file a 2012 tax return An expense does not have to be required to be considered necessary. How to file a 2012 tax return This chapter explains the following. How to file a 2012 tax return What expenses are deductible. How to file a 2012 tax return How to report your expenses on your return. How to file a 2012 tax return What records you need to prove your expenses. How to file a 2012 tax return How to treat any expense reimbursements you may receive. How to file a 2012 tax return Who does not need to use this chapter. How to file a 2012 tax return   If you are an employee, you will not need to read this chapter if all of the following are true. How to file a 2012 tax return You fully accounted to your employer for your work-related expenses. How to file a 2012 tax return You received full reimbursement for your expenses. How to file a 2012 tax return Your employer required you to return any excess reimbursement and you did so. How to file a 2012 tax return There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. How to file a 2012 tax return If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. How to file a 2012 tax return See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. How to file a 2012 tax return    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. How to file a 2012 tax return Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. How to file a 2012 tax return This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. How to file a 2012 tax return It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. How to file a 2012 tax return Travel expenses defined. How to file a 2012 tax return   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. How to file a 2012 tax return   You will find examples of deductible travel expenses in Table 26-1 . How to file a 2012 tax return Traveling Away From Home You are traveling away from home if: 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, and You need to sleep or rest to meet the demands of your work while away from home. How to file a 2012 tax return This rest requirement is not satisfied by merely napping in your car. How to file a 2012 tax return You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. How to file a 2012 tax return Example 1. How to file a 2012 tax return You are a railroad conductor. How to file a 2012 tax return You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. How to file a 2012 tax return During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. How to file a 2012 tax return You are considered to be away from home. How to file a 2012 tax return Example 2. How to file a 2012 tax return You are a truck driver. How to file a 2012 tax return You leave your terminal and return to it later the same day. How to file a 2012 tax return You get an hour off at your turnaround point to eat. How to file a 2012 tax return Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. How to file a 2012 tax return Members of the Armed Forces. How to file a 2012 tax return   If you are a member of the U. How to file a 2012 tax return S. How to file a 2012 tax return Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. How to file a 2012 tax return You cannot deduct your expenses for meals and lodging. How to file a 2012 tax return You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. How to file a 2012 tax return If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. How to file a 2012 tax return    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. How to file a 2012 tax return Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. How to file a 2012 tax return Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. How to file a 2012 tax return It includes the entire city or general area in which your business or work is located. How to file a 2012 tax return If you have more than one regular place of business, your tax home is your main place of business. How to file a 2012 tax return See Main place of business or work , later. How to file a 2012 tax return If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. How to file a 2012 tax return See No main place of business or work , later. How to file a 2012 tax return If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. How to file a 2012 tax return As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. How to file a 2012 tax return Main place of business or work. How to file a 2012 tax return   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. How to file a 2012 tax return The total time you ordinarily spend in each place. How to file a 2012 tax return The level of your business activity in each place. How to file a 2012 tax return Whether your income from each place is significant or insignificant. How to file a 2012 tax return Example. How to file a 2012 tax return You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. How to file a 2012 tax return You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. How to file a 2012 tax return Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. How to file a 2012 tax return No main place of business or work. How to file a 2012 tax return   You may have a tax home even if you do not have a regular or main place of business or work. How to file a 2012 tax return Your tax home may be the home where you regularly live. How to file a 2012 tax return Factors used to determine tax home. How to file a 2012 tax return   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. How to file a 2012 tax return You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. How to file a 2012 tax return You have living expenses at your main home that you duplicate because your business requires you to be away from that home. How to file a 2012 tax return You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. How to file a 2012 tax return   If you satisfy all three factors, your tax home is the home where you regularly live. How to file a 2012 tax return If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. How to file a 2012 tax return If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. How to file a 2012 tax return Example. How to file a 2012 tax return You are single and live in Boston in an apartment you rent. How to file a 2012 tax return You have worked for your employer in Boston for a number of years. How to file a 2012 tax return Your employer enrolls you in a 12-month executive training program. How to file a 2012 tax return You do not expect to return to work in Boston after you complete your training. How to file a 2012 tax return During your training, you do not do any work in Boston. How to file a 2012 tax return Instead, you receive classroom and on-the-job training throughout the United States. How to file a 2012 tax return You keep your apartment in Boston and return to it frequently. How to file a 2012 tax return You use your apartment to conduct your personal business. How to file a 2012 tax return You also keep up your community contacts in Boston. How to file a 2012 tax return When you complete your training, you are transferred to Los Angeles. How to file a 2012 tax return You do not satisfy factor (1) because you did not work in Boston. How to file a 2012 tax return You satisfy factor (2) because you had duplicate living expenses. How to file a 2012 tax return You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. How to file a 2012 tax return Therefore, you have a tax home in Boston. How to file a 2012 tax return Tax home different from family home. How to file a 2012 tax return   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. How to file a 2012 tax return You also cannot deduct the cost of meals and lodging while at your tax home. How to file a 2012 tax return See Example 1 . How to file a 2012 tax return   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. How to file a 2012 tax return See Example 2 . How to file a 2012 tax return Example 1. How to file a 2012 tax return You are a truck driver and you and your family live in Tucson. How to file a 2012 tax return You are employed by a trucking firm that has its terminal in Phoenix. How to file a 2012 tax return At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. How to file a 2012 tax return You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. How to file a 2012 tax return This is because Phoenix is your tax home. How to file a 2012 tax return Example 2. How to file a 2012 tax return Your family home is in Pittsburgh, where you work 12 weeks a year. How to file a 2012 tax return The rest of the year you work for the same employer in Baltimore. How to file a 2012 tax return In Baltimore, you eat in restaurants and sleep in a rooming house. How to file a 2012 tax return Your salary is the same whether you are in Pittsburgh or Baltimore. How to file a 2012 tax return Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. How to file a 2012 tax return You cannot deduct any expenses you have for meals and lodging there. How to file a 2012 tax return However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. How to file a 2012 tax return You can deduct the cost of your round trip between Baltimore and Pittsburgh. How to file a 2012 tax return You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. How to file a 2012 tax return Temporary Assignment or Job You may regularly work at your tax home and also work at another location. How to file a 2012 tax return It may not be practical to return to your tax home from this other location at the end of each work day. How to file a 2012 tax return Temporary assignment vs. How to file a 2012 tax return indefinite assignment. How to file a 2012 tax return   If your assignment or job away from your main place of work is temporary, your tax home does not change. How to file a 2012 tax return You are considered to be away from home for the whole period you are away from your main place of work. How to file a 2012 tax return You can deduct your travel expenses if they otherwise qualify for deduction. How to file a 2012 tax return Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. How to file a 2012 tax return   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. How to file a 2012 tax return An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. How to file a 2012 tax return   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. How to file a 2012 tax return You may be able to deduct the cost of relocating to your new tax home as a moving expense. How to file a 2012 tax return See Publication 521 for more information. How to file a 2012 tax return Exception for federal crime investigations or prosecutions. How to file a 2012 tax return   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. How to file a 2012 tax return This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. How to file a 2012 tax return   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. How to file a 2012 tax return Determining temporary or indefinite. How to file a 2012 tax return   You must determine whether your assignment is temporary or indefinite when you start work. How to file a 2012 tax return If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. How to file a 2012 tax return An assignment or job that is initially temporary may become indefinite due to changed circumstances. How to file a 2012 tax return A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. How to file a 2012 tax return Going home on days off. How to file a 2012 tax return   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. How to file a 2012 tax return You cannot deduct the cost of your meals and lodging there. How to file a 2012 tax return However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. How to file a 2012 tax return You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. How to file a 2012 tax return   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. How to file a 2012 tax return In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. How to file a 2012 tax return Probationary work period. How to file a 2012 tax return   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. How to file a 2012 tax return You cannot deduct any of your expenses for meals and lodging during the probationary period. How to file a 2012 tax return What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. How to file a 2012 tax return You can deduct ordinary and necessary expenses you have when you travel away from home on business. How to file a 2012 tax return The type of expense you can deduct depends on the facts and your circumstances. How to file a 2012 tax return Table 26-1 summarizes travel expenses you may be able to deduct. How to file a 2012 tax return You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. How to file a 2012 tax return When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. How to file a 2012 tax return You can use a log, diary, notebook, or any other written record to keep track of your expenses. How to file a 2012 tax return The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. How to file a 2012 tax return Separating costs. How to file a 2012 tax return   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. How to file a 2012 tax return You must have a reasonable basis for making this allocation. How to file a 2012 tax return For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. How to file a 2012 tax return Travel expenses for another individual. How to file a 2012 tax return   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. How to file a 2012 tax return Employee. How to file a 2012 tax return   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. How to file a 2012 tax return Business associate. How to file a 2012 tax return   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. How to file a 2012 tax return A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. How to file a 2012 tax return A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. How to file a 2012 tax return Bona fide business purpose. How to file a 2012 tax return   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. How to file a 2012 tax return Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. How to file a 2012 tax return Example. How to file a 2012 tax return Jerry drives to Chicago on business and takes his wife, Linda, with him. How to file a 2012 tax return Linda is not Jerry's employee. How to file a 2012 tax return Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. How to file a 2012 tax return The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. How to file a 2012 tax return Her expenses are not deductible. How to file a 2012 tax return Jerry pays $199 a day for a double room. How to file a 2012 tax return A single room costs $149 a day. How to file a 2012 tax return He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. How to file a 2012 tax return If he uses public transportation, he can deduct only his fare. How to file a 2012 tax return Table 26-1. How to file a 2012 tax return Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. How to file a 2012 tax return IF you have expenses for. How to file a 2012 tax return . How to file a 2012 tax return . How to file a 2012 tax return THEN you can deduct the cost of. How to file a 2012 tax return . How to file a 2012 tax return . How to file a 2012 tax return transportation travel by airplane, train, bus, or car between your home and your business destination. How to file a 2012 tax return If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. How to file a 2012 tax return If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. How to file a 2012 tax return taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. How to file a 2012 tax return baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. How to file a 2012 tax return car operating and maintaining your car when traveling away from home on business. How to file a 2012 tax return You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. How to file a 2012 tax return If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. How to file a 2012 tax return lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. How to file a 2012 tax return Meals include amounts spent for food, beverages, taxes, and related tips. How to file a 2012 tax return See Meals and Incidental Expenses for additional rules and limits. How to file a 2012 tax return cleaning dry cleaning and laundry. How to file a 2012 tax return telephone business calls while on your business trip. How to file a 2012 tax return This includes business communication by fax machine or other communication devices. How to file a 2012 tax return tips tips you pay for any expenses in this chart. How to file a 2012 tax return other other similar ordinary and necessary expenses related to your business travel. How to file a 2012 tax return These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. How to file a 2012 tax return Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. How to file a 2012 tax return It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. How to file a 2012 tax return The meal is business-related entertainment. How to file a 2012 tax return Business-related entertainment is discussed under Entertainment Expenses , later. How to file a 2012 tax return The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. How to file a 2012 tax return Lavish or extravagant. How to file a 2012 tax return   You cannot deduct expenses for meals that are lavish or extravagant. How to file a 2012 tax return An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. How to file a 2012 tax return Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. How to file a 2012 tax return 50% limit on meals. How to file a 2012 tax return   You can figure your meal expenses using either of the following methods. How to file a 2012 tax return Actual cost. How to file a 2012 tax return The standard meal allowance. How to file a 2012 tax return Both of these methods are explained below. How to file a 2012 tax return But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. How to file a 2012 tax return   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. How to file a 2012 tax return If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. How to file a 2012 tax return The 50% limit is explained later under Entertainment Expenses . How to file a 2012 tax return Accountable and nonaccountable plans are discussed later under Reimbursements . How to file a 2012 tax return Actual cost. How to file a 2012 tax return   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. How to file a 2012 tax return If you use this method, you must keep records of your actual cost. How to file a 2012 tax return Standard meal allowance. How to file a 2012 tax return   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. How to file a 2012 tax return It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. How to file a 2012 tax return The set amount varies depending on where and when you travel. How to file a 2012 tax return In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . How to file a 2012 tax return If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. How to file a 2012 tax return See Recordkeeping , later. How to file a 2012 tax return Incidental expenses. How to file a 2012 tax return   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. How to file a 2012 tax return Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. How to file a 2012 tax return Incidental expenses only method. How to file a 2012 tax return   You can use an optional method (instead of actual cost) for deducting incidental expenses only. How to file a 2012 tax return The amount of the deduction is $5 a day. How to file a 2012 tax return You can use this method only if you did not pay or incur any meal expenses. How to file a 2012 tax return You cannot use this method on any day that you use the standard meal allowance. How to file a 2012 tax return    Federal employees should refer to the Federal Travel Regulations at  www. How to file a 2012 tax return gsa. How to file a 2012 tax return gov. How to file a 2012 tax return Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. How to file a 2012 tax return 50% limit may apply. How to file a 2012 tax return   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. How to file a 2012 tax return If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. How to file a 2012 tax return The 50% limit is explained later under Entertainment Expenses . How to file a 2012 tax return Accountable and nonaccountable plans are discussed later under Reimbursements . How to file a 2012 tax return There is no optional standard lodging amount similar to the standard meal allowance. How to file a 2012 tax return Your allowable lodging expense deduction is your actual cost. How to file a 2012 tax return Who can use the standard meal allowance. How to file a 2012 tax return   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. How to file a 2012 tax return   Use of the standard meal allowance for other travel. How to file a 2012 tax return    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. How to file a 2012 tax return You can also use it to figure your meal expenses when you travel for qualifying educational purposes. How to file a 2012 tax return You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. How to file a 2012 tax return Amount of standard meal allowance. How to file a 2012 tax return   The standard meal allowance is the federal M&IE rate. How to file a 2012 tax return For travel in 2013, the daily rate for most small localities in the United States is $46. How to file a 2012 tax return   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. How to file a 2012 tax return You can find this information (organized by state) on the Internet at www. How to file a 2012 tax return gsa. How to file a 2012 tax return gov. How to file a 2012 tax return Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. How to file a 2012 tax return However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. How to file a 2012 tax return You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. How to file a 2012 tax return   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. How to file a 2012 tax return If you work in the transportation industry, however, see Special rate for transportation workers , later. How to file a 2012 tax return Standard meal allowance for areas outside the continental United States. How to file a 2012 tax return    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. How to file a 2012 tax return The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. How to file a 2012 tax return S. How to file a 2012 tax return Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. How to file a 2012 tax return The Department of State establishes per diem rates for all other foreign areas. How to file a 2012 tax return    You can access per diem rates for non-foreign areas outside the continental United States at: www. How to file a 2012 tax return defensetravel. How to file a 2012 tax return dod. How to file a 2012 tax return mil/site/perdiemCalc. How to file a 2012 tax return cfm. How to file a 2012 tax return You can access all other foreign per diem rates at www. How to file a 2012 tax return state. How to file a 2012 tax return gov/travel/. How to file a 2012 tax return Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. How to file a 2012 tax return Special rate for transportation workers. How to file a 2012 tax return   You can use a special standard meal allowance if you work in the transportation industry. How to file a 2012 tax return You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. How to file a 2012 tax return If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). How to file a 2012 tax return   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. How to file a 2012 tax return If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. How to file a 2012 tax return Travel for days you depart and return. How to file a 2012 tax return   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). How to file a 2012 tax return You can do so by one of two methods. How to file a 2012 tax return Method 1: You can claim 3/4 of the standard meal allowance. How to file a 2012 tax return Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. How to file a 2012 tax return Example. How to file a 2012 tax return Jen is employed in New Orleans as a convention planner. How to file a 2012 tax return In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. How to file a 2012 tax return She left her home in New Orleans at 10 a. How to file a 2012 tax return m. How to file a 2012 tax return on Wednesday and arrived in Washington, DC, at 5:30 p. How to file a 2012 tax return m. How to file a 2012 tax return After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. How to file a 2012 tax return m. How to file a 2012 tax return Jen's employer gave her a flat amount to cover her expenses and included it with her wages. How to file a 2012 tax return Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. How to file a 2012 tax return Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. How to file a 2012 tax return For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. How to file a 2012 tax return Travel in the United States The following discussion applies to travel in the United States. How to file a 2012 tax return For this purpose, the United States includes only the 50 states and the District of Columbia. How to file a 2012 tax return The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. How to file a 2012 tax return See Part of Trip Outside the United States , later. How to file a 2012 tax return Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. How to file a 2012 tax return If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. How to file a 2012 tax return These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. How to file a 2012 tax return Example. How to file a 2012 tax return You work in Atlanta and take a business trip to New Orleans in May. How to file a 2012 tax return On your way home, you stop in Mobile to visit your parents. How to file a 2012 tax return You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. How to file a 2012 tax return If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. How to file a 2012 tax return You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. How to file a 2012 tax return The deduction for your meals is subject to the 50% limit on meals mentioned earlier. How to file a 2012 tax return Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. How to file a 2012 tax return However, you can deduct any expenses you have while at your destination that are directly related to your business. How to file a 2012 tax return A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. How to file a 2012 tax return The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. How to file a 2012 tax return Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. How to file a 2012 tax return For the part of your trip that is inside the United States, use the rules for travel in the United States. How to file a 2012 tax return Travel outside the United States does not include travel from one point in the United States to another point in the United States. How to file a 2012 tax return The following discussion can help you determine whether your trip was entirely within the United States. How to file a 2012 tax return Public transportation. How to file a 2012 tax return   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. How to file a 2012 tax return Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . How to file a 2012 tax return Example. How to file a 2012 tax return You fly from New York to Puerto Rico with a scheduled stop in Miami. How to file a 2012 tax return You return to New York nonstop. How to file a 2012 tax return The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. How to file a 2012 tax return Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. How to file a 2012 tax return Private car. How to file a 2012 tax return   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. How to file a 2012 tax return Example. How to file a 2012 tax return You travel by car from Denver to Mexico City and return. How to file a 2012 tax return Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. How to file a 2012 tax return The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. How to file a 2012 tax return Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. How to file a 2012 tax return For this purpose, the United States includes only the 50 states and the District of Columbia. How to file a 2012 tax return How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. How to file a 2012 tax return See chapter 1 of Publication 463 for information on luxury water travel. How to file a 2012 tax return Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. How to file a 2012 tax return Travel entirely for business. How to file a 2012 tax return   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. How to file a 2012 tax return Travel considered entirely for business. How to file a 2012 tax return   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. How to file a 2012 tax return Exception 1 - No substantial control. How to file a 2012 tax return   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. How to file a 2012 tax return The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. How to file a 2012 tax return   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. How to file a 2012 tax return    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . How to file a 2012 tax return   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. How to file a 2012 tax return    A self-employed person generally has substantial control over arranging business trips. How to file a 2012 tax return Exception 2 - Outside United States no more than a week. How to file a 2012 tax return   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. How to file a 2012 tax return One week means 7 consecutive days. How to file a 2012 tax return In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. How to file a 2012 tax return Exception 3 - Less than 25% of time on personal activities. How to file a 2012 tax return   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. How to file a 2012 tax return For this purpose, count both the day your trip began and the day it ended. How to file a 2012 tax return Exception 4 - Vacation not a major consideration. How to file a 2012 tax return   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. How to file a 2012 tax return Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. How to file a 2012 tax return You can only deduct the business portion of your cost of getting to and from your destination. How to file a 2012 tax return You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. How to file a 2012 tax return These travel allocation rules are discussed in chapter 1 of Publication 463. How to file a 2012 tax return You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. How to file a 2012 tax return In those cases, you can deduct the total cost of getting to and from your destination. How to file a 2012 tax return Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. How to file a 2012 tax return If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. How to file a 2012 tax return Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. How to file a 2012 tax return You cannot deduct the travel expenses for your family. How to file a 2012 tax return If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. How to file a 2012 tax return Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. How to file a 2012 tax return You can deduct your travel expenses only if your attendance is connected to your own trade or business. How to file a 2012 tax return Convention agenda. How to file a 2012 tax return   The convention agenda or program generally shows the purpose of the convention. How to file a 2012 tax return You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. How to file a 2012 tax return The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. How to file a 2012 tax return Conventions held outside the North American area. How to file a 2012 tax return    See chapter 1 of Publication 463 for information on conventions held outside the North American area. How to file a 2012 tax return Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. How to file a 2012 tax return You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. How to file a 2012 tax return Directly-related test. How to file a 2012 tax return Associated test. How to file a 2012 tax return Both of these tests are explained in chapter 2 of Publication 463. How to file a 2012 tax return The amount you can deduct for entertainment expenses may be limited. How to file a 2012 tax return Generally, you can deduct only 50% of your unreimbursed entertainment expenses. How to file a 2012 tax return This limit is discussed next. How to file a 2012 tax return 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. How to file a 2012 tax return (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. How to file a 2012 tax return See Individuals subject to “hours of service” limits , later. How to file a 2012 tax return ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. How to file a 2012 tax return Figure 26-A summarizes the general rules explained in this section. How to file a 2012 tax return The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. How to file a 2012 tax return Included expenses. How to file a 2012 tax return   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. How to file a 2012 tax return However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. How to file a 2012 tax return Application of 50% limit. How to file a 2012 tax return   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. How to file a 2012 tax return   The 50% limit also applies to certain meal and entertainment expenses that are not business related. How to file a 2012 tax return It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. How to file a 2012 tax return It also applies to the cost of meals included in deductible educational expenses. How to file a 2012 tax return When to apply the 50% limit. How to file a 2012 tax return   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. How to file a 2012 tax return You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. How to file a 2012 tax return Example 1. How to file a 2012 tax return You spend $200 for a business-related meal. How to file a 2012 tax return If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. How to file a 2012 tax return Your deduction cannot be more than $45 (. How to file a 2012 tax return 50 × $90). How to file a 2012 tax return Example 2. How to file a 2012 tax return You purchase two tickets to a concert and give them to a client. How to file a 2012 tax return You purchased the tickets through a ticket agent. How to file a 2012 tax return You paid $200 for the two tickets, which had a face value of $80 each ($160 total). How to file a 2012 tax return Your deduction cannot be more than $80 (. How to file a 2012 tax return 50 × $160). How to file a 2012 tax return Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. How to file a 2012 tax return Figure 26-A can help you determine if the 50% limit applies to you. How to file a 2012 tax return Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. How to file a 2012 tax return Employee's reimbursed expenses. How to file a 2012 tax return   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. How to file a 2012 tax return Accountable plans are discussed later under Reimbursements . How to file a 2012 tax return Individuals subject to “hours of service” limits. How to file a 2012 tax return   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. How to file a 2012 tax return The percentage is 80%. How to file a 2012 tax return   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. How to file a 2012 tax return Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. How to file a 2012 tax return Interstate truck operators and bus drivers who are under Department of Transportation regulations. How to file a 2012 tax return Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. How to file a 2012 tax return Certain merchant mariners who are under Coast Guard regulations. How to file a 2012 tax return Other exceptions. How to file a 2012 tax return   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. How to file a 2012 tax return These are discussed in Publication 463. How to file a 2012 tax return Figure 26-A. How to file a 2012 tax return Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. How to file a 2012 tax return See Exceptions to the 50% Limit . How to file a 2012 tax return Please click here for the text description of the image. How to file a 2012 tax return Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. How to file a 2012 tax return Entertainment. How to file a 2012 tax return    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. How to file a 2012 tax return Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. How to file a 2012 tax return A meal as a form of entertainment. How to file a 2012 tax return   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. How to file a 2012 tax return A meal expense includes the cost of food, beverages, taxes, and tips for the meal. How to file a 2012 tax return To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. How to file a 2012 tax return You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. How to file a 2012 tax return Separating costs. How to file a 2012 tax return   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. How to file a 2012 tax return You must have a reasonable basis for making this allocation. How to file a 2012 tax return For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. How to file a 2012 tax return Taking turns paying for meals or entertainment. How to file a 2012 tax return   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. How to file a 2012 tax return Lavish or extravagant expenses. How to file a 2012 tax return   You cannot deduct expenses for entertainment that are lavish or extravagant. How to file a 2012 tax return An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. How to file a 2012 tax return Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. How to file a 2012 tax return Trade association meetings. How to file a 2012 tax return    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. How to file a 2012 tax return These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. How to file a 2012 tax return Entertainment tickets. How to file a 2012 tax return   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. How to file a 2012 tax return For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. How to file a 2012 tax return What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. How to file a 2012 tax return Club dues and membership fees. How to file a 2012 tax return   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. How to file a 2012 tax return This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. How to file a 2012 tax return   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. How to file a 2012 tax return You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. How to file a 2012 tax return Entertainment facilities. How to file a 2012 tax return   Generally, you cannot deduct any expense for the use of an entertainment facility. How to file a 2012 tax return This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. How to file a 2012 tax return   An entertainment facility is any property you own, rent, or use for entertainment. How to file a 2012 tax return Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. How to file a 2012 tax return Out-of-pocket expenses. How to file a 2012 tax return   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. How to file a 2012 tax return These are not expenses for the use of an entertainment facility. How to file a 2012 tax return However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. How to file a 2012 tax return Additional information. How to file a 2012 tax return   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. How to file a 2012 tax return Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. How to file a 2012 tax return This section explains the limits and rules for deducting the costs of gifts. How to file a 2012 tax return $25 limit. How to file a 2012 tax return   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. How to file a 2012 tax return A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. How to file a 2012 tax return   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. How to file a 2012 tax return This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. How to file a 2012 tax return   If you and your spouse both give gifts, both of you are treated as one taxpayer. How to file a 2012 tax return It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. How to file a 2012 tax return If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. How to file a 2012 tax return Incidental costs. How to file a 2012 tax return   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. How to file a 2012 tax return   A cost is incidental only if it does not add substantial value to the gift. How to file a 2012 tax return For example, the cost of customary gift wrapping is an incidental cost. How to file a 2012 tax return However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. How to file a 2012 tax return Exceptions. How to file a 2012 tax return   The following items are not considered gifts for purposes of the $25 limit. How to file a 2012 tax return An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. How to file a 2012 tax return Examples include pens, desk sets, and plastic bags and cases. How to file a 2012 tax return Signs, display racks, or other promotional material to be used on the business premises of the recipient. How to file a 2012 tax return Gift or entertainment. How to file a 2012 tax return   Any item that might be considered either a gift or entertainment generally will be considered entertainment. How to file a 2012 tax return However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. How to file a 2012 tax return    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. How to file a 2012 tax return You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. How to file a 2012 tax return    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. How to file a 2012 tax return You cannot choose, in this case, to treat the cost of the tickets as a gift expense. How to file a 2012 tax return Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . How to file a 2012 tax return These expenses include the cost of transportation by air, rail, bus, taxi, etc. How to file a 2012 tax return , and the cost of driving and maintaining your car. How to file a 2012 tax return Transportation expenses include the ordinary and necessary costs of all of the following. How to file a 2012 tax return Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. How to file a 2012 tax return (Tax home is defined earlier under Travel Expenses . How to file a 2012 tax return ) Visiting clients or customers. How to file a 2012 tax return Going to a business meeting away from your regular workplace. How to file a 2012 tax return Getting from your home to a temporary workplace when you have one or more regular places of work. How to file a 2012 tax return These temporary workplaces can be either within the area of your tax home or outside that area. How to file a 2012 tax return Transportation expenses do not include expenses you have while traveling away from home overnight. How to file a 2012 tax return Those expenses are travel expenses, discussed earlier. How to file a 2012 tax return However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. How to file a 2012 tax return See Car Expenses , later. How to file a 2012 tax return Illustration of transportation expenses. How to file a 2012 tax return    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. How to file a 2012 tax return You may want to refer to it when deciding whether you can deduct your transportation expenses. How to file a 2012 tax return Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. How to file a 2012 tax return However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. How to file a 2012 tax return Temporary work location. How to file a 2012 tax return   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. How to file a 2012 tax return   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. How to file a 2012 tax return   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. How to file a 2012 tax return   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. How to file a 2012 tax return It will not be treated as temporary after the date you determine it will last more than 1 year. How to file a 2012 tax return   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. How to file a 2012 tax return You may have deductible travel expenses as discussed earlier in this chapter. How to file a 2012 tax return No regular place of work. How to file a 2012 tax return   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. How to file a 2012 tax return   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. How to file a 2012 tax return   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. How to file a 2012 tax return These are nondeductible commuting expenses. How to file a 2012 tax return Two places of work. How to file a 2012 tax return   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. How to file a 2012 tax return However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. How to file a 2012 tax return   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. How to file a 2012 tax return You cannot deduct them. How to file a 2012 tax return Armed Forces reservists. How to file a 2012 tax return   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. How to file a 2012 tax return You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. How to file a 2012 tax return   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. How to file a 2012 tax return In this case, your transportation generally is a nondeductible commuting expense. How to file a 2012 tax return However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. How to file a 2012 tax return   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. How to file a 2012 tax return   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. How to file a 2012 tax return These expenses are discussed earlier under Travel Expenses . How to file a 2012 tax return   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. How to file a 2012 tax return See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. How to file a 2012 tax return Commuting expenses. How to file a 2012 tax return   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. How to file a 2012 tax return These costs are personal commuting expenses. How to file a 2012 tax return You cannot deduct commuting expenses no matter how far your home is from your regular place of work. How to file a 2012 tax return You cannot deduct commuting expenses even if you work during the commuting trip. How to file a 2012 tax return Example. How to file a 2012 tax return You sometimes use your cell phone to make business calls while commuting to and from work. How to file a 2012 tax return Sometimes business associates ride with you to and from work, and you have a business discussion in the car. How to file a 2012 tax return These activities do not change the trip from personal to business. How to file a 2012 tax return You cannot deduct your commuting expenses. How to file a 2012 tax return Parking fees. How to file a 2012 tax return   Fees you pay to park your car at your place of business are nondeductible commuting expenses. How to file a 2012 tax return You can, however, deduct business-related parking fees when visiting a customer or client. How to file a 2012 tax return Advertising display on car. How to file a 2012 tax return   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. How to file a 2012 tax return If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. How to file a 2012 tax return Car pools. How to file a 2012 tax return   You cannot deduct the cost of using your car in a nonprofit car pool. How to file a 2012 tax return Do not include payments you receive from the passengers in your income. How to file a 2012 tax return These payments are considered reimbursements of your expenses. How to file a 2012 tax return However, if you operate a car pool for a profit, you must include payments from passengers in your income. How to file a 2012 tax return You can then deduct your car expenses (using the rules in this chapter). How to file a 2012 tax return Hauling tools or instruments. How to file a 2012 tax return   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. How to file a 2012 tax return However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). How to file a 2012 tax return Union members' trips from a union hall. How to file a 2012 tax return   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. How to file a 2012 tax return Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. How to file a 2012 tax return Office in the home. How to file a 2012 tax return   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. How to file a 2012 tax return (See chapter 28 for information on determining if your home office qualifies as a principal place of business. How to file a 2012 tax return ) Figure 26-B. How to file a 2012 tax return When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. How to file a 2012 tax return (Do not use this chart if your home is your principal place of business. How to file a 2012 tax return See Office in the home . How to file a 2012 tax return ) Please click here for the text description of the image. How to file a 2012 tax return Figure 26-B. How to file a 2012 tax return Local Transportation Examples of deductible transportation. How to file a 2012 tax return   The following examples show when you can deduct transportation expenses based on the location of your work and your home. How to file a 2012 tax return Example 1. How to file a 2012 tax return You regularly work in an office in the city where you live. How to file a 2012 tax return Your employer sends you to a 1-week training session at a different office in the same city. How to file a 2012 tax return You travel directly from your home to the training location and return each day. How to file a 2012 tax return You can deduct the cost of your daily round-trip transportation between your home and the training location. How to file a 2012 tax return Example 2. How to file a 2012 tax return Your principal place of business is in your home. How to file a 2012 tax return You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. How to file a 2012 tax return Example 3. How to file a 2012 tax return You have no regular office, and you do not have an office in your home. How to file a 2012 tax return In this case, the location of your first business contact inside the metropolitan area is considered your office. How to file a 2012 tax return Transportation expenses between your home and this first contact are nondeductible commuting expenses. How to file a 2012 tax return Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. How to file a 2012 tax return While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. How to file a 2012 tax return With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. How to file a 2012 tax return Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. How to file a 2012 tax return You generally can use one of the two following methods to figure your deductible expenses. How to file a 2012 tax return Standard mileage rate. How to file a 2012 tax return Actual car expenses. How to file a 2012 tax return If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. How to file a 2012 tax return See Leasing a car under Actual Car Expenses, later. How to file a 2012 tax return In this chapter, “car” includes a van, pickup, or panel truck. How to file a 2012 tax return Rural mail carriers. How to file a 2012 tax return   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. How to file a 2012 tax return Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. How to file a 2012 tax return   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). How to file a 2012 tax return You must complete Form 2106 and attach it to your Form 1040. How to file a 2012 tax return   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. How to file a 2012 tax return It is given as an equipment maintenance allowance (EMA) to employees of the U. How to file a 2012 tax return S. How to file a 2012 tax return Postal Service. How to file a 2012 tax return It is at the rate contained in the 1991 collective bargaining agreement. How to file a 2012 tax return Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. How to file a 2012 tax return See your employer for information on your reimbursement. How to file a 2012 tax return If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. How to file a 2012 tax return Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. How to file a 2012 tax return For 2013, the standard mileage rate for business use is 56½ cents per mile. How to file a 2012 tax return If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. How to file a 2012 tax return You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. How to file a 2012 tax return See Reimbursements under How To Report, later. How to file a 2012 tax return Choosing the standard mileage rate. How to file a 2012 tax return   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How to file a 2012 tax return Then in later years, you can choose to use either the standard mileage rate or actual expenses. How to file a 2012 tax return   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. How to file a 2012 tax return   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. How to file a 2012 tax return You cannot revoke the choice. How to file a 2012 tax return However, in a later year, you can switch from the standard mileage rate to the actual expenses method. How to file a 2012 tax return If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. How to file a 2012 tax return Example. How to file a 2012 tax return Larry is an employee who occasionally uses his own car for business purposes. How to file a 2012 tax return He purchased the car in 2011, but he did not claim any unreimburse
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The How To File A 2012 Tax Return

How to file a 2012 tax return 2. How to file a 2012 tax return   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. How to file a 2012 tax return Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. How to file a 2012 tax return S. How to file a 2012 tax return or foreign source income. How to file a 2012 tax return This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. How to file a 2012 tax return S. How to file a 2012 tax return Virgin Islands (USVI). How to file a 2012 tax return Generally, the same rules that apply for determining U. How to file a 2012 tax return S. How to file a 2012 tax return source income also apply for determining possession source income. How to file a 2012 tax return However, there are some important exceptions to these rules. How to file a 2012 tax return Both the general rules and the exceptions are discussed in this chapter. How to file a 2012 tax return U. How to file a 2012 tax return S. How to file a 2012 tax return income rule. How to file a 2012 tax return   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. How to file a 2012 tax return Table 2-1 shows the general rules for determining whether income is from sources within the United States. How to file a 2012 tax return Table 2-1. How to file a 2012 tax return General Rules for Determining U. How to file a 2012 tax return S. How to file a 2012 tax return Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. How to file a 2012 tax return Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. How to file a 2012 tax return For more information, see Regulations section 1. How to file a 2012 tax return 863-1(b). How to file a 2012 tax return Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. How to file a 2012 tax return Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. How to file a 2012 tax return Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. How to file a 2012 tax return It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. How to file a 2012 tax return Services performed wholly within a relevant possession. How to file a 2012 tax return   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. How to file a 2012 tax return However, there is an exception for income earned as a member of the U. How to file a 2012 tax return S. How to file a 2012 tax return Armed Forces or a civilian spouse. How to file a 2012 tax return U. How to file a 2012 tax return S. How to file a 2012 tax return Armed Forces. How to file a 2012 tax return   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. How to file a 2012 tax return However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. How to file a 2012 tax return Civilian spouse of active duty member of the U. How to file a 2012 tax return S. How to file a 2012 tax return Armed Forces. How to file a 2012 tax return   If you are a bona fide resident of a U. How to file a 2012 tax return S. How to file a 2012 tax return possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. How to file a 2012 tax return Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. How to file a 2012 tax return S. How to file a 2012 tax return possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. How to file a 2012 tax return Services performed partly inside and partly outside a relevant possession. How to file a 2012 tax return   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. How to file a 2012 tax return Compensation (other than certain fringe benefits) is sourced on a time basis. How to file a 2012 tax return Certain fringe benefits (such as housing and education) are sourced on a geographical basis. How to file a 2012 tax return   Or, you may be permitted to use an alternative basis to determine the source of compensation. How to file a 2012 tax return See Alternative basis , later. How to file a 2012 tax return   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. How to file a 2012 tax return In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. How to file a 2012 tax return Time basis. How to file a 2012 tax return   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). How to file a 2012 tax return Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. How to file a 2012 tax return The time period for which the income is made does not have to be a year. How to file a 2012 tax return Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. How to file a 2012 tax return Example. How to file a 2012 tax return In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. How to file a 2012 tax return Your Puerto Rico source income is $60,000, figured as follows. How to file a 2012 tax return       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. How to file a 2012 tax return   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. How to file a 2012 tax return Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. How to file a 2012 tax return You determine the period to which the income is attributable based on the facts and circumstances of your case. How to file a 2012 tax return For more information on multi-year compensation, see Treasury Decision (T. How to file a 2012 tax return D. How to file a 2012 tax return ) 9212 and Regulations section 1. How to file a 2012 tax return 861-4, 2005-35 I. How to file a 2012 tax return R. How to file a 2012 tax return B. How to file a 2012 tax return 429, available at www. How to file a 2012 tax return irs. How to file a 2012 tax return gov/irb/2005-35_IRB/ar14. How to file a 2012 tax return html. How to file a 2012 tax return Certain fringe benefits sourced on a geographical basis. How to file a 2012 tax return   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. How to file a 2012 tax return Housing. How to file a 2012 tax return Education. How to file a 2012 tax return Local transportation. How to file a 2012 tax return Tax reimbursement. How to file a 2012 tax return Hazardous or hardship duty pay. How to file a 2012 tax return Moving expense reimbursement. How to file a 2012 tax return For information on determining the source of the fringe benefits listed above, see Regulations section 1. How to file a 2012 tax return 861-4. How to file a 2012 tax return Alternative basis. How to file a 2012 tax return   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. How to file a 2012 tax return If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. How to file a 2012 tax return De minimis exception. How to file a 2012 tax return   There is an exception to the rule for determining the source of income earned in a possession. How to file a 2012 tax return Generally, you will not have income from a possession if during a tax year you: Are a U. How to file a 2012 tax return S. How to file a 2012 tax return citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. How to file a 2012 tax return This exception began with income earned during your 2008 tax year. How to file a 2012 tax return Pensions. How to file a 2012 tax return   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. How to file a 2012 tax return The contribution portion is sourced according to where services were performed that earned the pension. How to file a 2012 tax return The investment earnings portion is sourced according to the location of the pension trust. How to file a 2012 tax return Example. How to file a 2012 tax return You are a U. How to file a 2012 tax return S. How to file a 2012 tax return citizen who worked in Puerto Rico for a U. How to file a 2012 tax return S. How to file a 2012 tax return company. How to file a 2012 tax return All services were performed in Puerto Rico. How to file a 2012 tax return Upon retirement you remained in Puerto Rico and began receiving your pension from the U. How to file a 2012 tax return S. How to file a 2012 tax return pension trust of your employer. How to file a 2012 tax return Distributions from the U. How to file a 2012 tax return S. How to file a 2012 tax return pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. How to file a 2012 tax return S. How to file a 2012 tax return source income. How to file a 2012 tax return Investment Income This category includes such income as interest, dividends, rents, and royalties. How to file a 2012 tax return Interest income. How to file a 2012 tax return   The source of interest income is generally determined by the residence of the payer. How to file a 2012 tax return Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. How to file a 2012 tax return   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. How to file a 2012 tax return See Regulations section 1. How to file a 2012 tax return 937-2(i) for more information. How to file a 2012 tax return Dividends. How to file a 2012 tax return   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. How to file a 2012 tax return There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. How to file a 2012 tax return For more information, see Regulations section 1. How to file a 2012 tax return 937-2(g). How to file a 2012 tax return Rental income. How to file a 2012 tax return   Rents from property located in a relevant possession are treated as income from sources within that possession. How to file a 2012 tax return Royalties. How to file a 2012 tax return   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. How to file a 2012 tax return   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. How to file a 2012 tax return Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. How to file a 2012 tax return The most common situations are discussed below. How to file a 2012 tax return Real property. How to file a 2012 tax return   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. How to file a 2012 tax return The location of the property generally determines the source of income from the sale. How to file a 2012 tax return For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. How to file a 2012 tax return If, however, the home you sold was located in the United States, the gain is U. How to file a 2012 tax return S. How to file a 2012 tax return source income. How to file a 2012 tax return Personal property. How to file a 2012 tax return   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. How to file a 2012 tax return Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. How to file a 2012 tax return If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. How to file a 2012 tax return   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. How to file a 2012 tax return The rules applying to sales of inventory are discussed below. How to file a 2012 tax return For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. How to file a 2012 tax return Inventory. How to file a 2012 tax return   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. How to file a 2012 tax return The source of income from the sale of inventory depends on whether the inventory was purchased or produced. How to file a 2012 tax return Purchased. How to file a 2012 tax return   Income from the sale of inventory that you purchased is sourced where you sell the property. How to file a 2012 tax return Generally, this is where title to the property passes to the buyer. How to file a 2012 tax return Produced. How to file a 2012 tax return   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. How to file a 2012 tax return For information on making the allocation, see Regulations section 1. How to file a 2012 tax return 863-3(f). How to file a 2012 tax return Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. How to file a 2012 tax return S. How to file a 2012 tax return citizen or resident alien prior to becoming a bona fide resident of a possession. How to file a 2012 tax return You are subject to these special rules if you meet both of the following conditions. How to file a 2012 tax return For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. How to file a 2012 tax return For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). How to file a 2012 tax return If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. How to file a 2012 tax return Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. How to file a 2012 tax return S. How to file a 2012 tax return tax return. How to file a 2012 tax return (See chapter 3 for additional filing information. How to file a 2012 tax return ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. How to file a 2012 tax return These rules apply to dispositions after April 11, 2005. How to file a 2012 tax return For details, see Regulations section 1. How to file a 2012 tax return 937-2(f)(1) and Examples 1 and 2 of section 1. How to file a 2012 tax return 937-2(k). How to file a 2012 tax return Example 1. How to file a 2012 tax return In 2007, Cheryl Jones, a U. How to file a 2012 tax return S. How to file a 2012 tax return citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. How to file a 2012 tax return S. How to file a 2012 tax return corporation listed on the New York Stock Exchange. How to file a 2012 tax return On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. How to file a 2012 tax return Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. How to file a 2012 tax return On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. How to file a 2012 tax return On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. How to file a 2012 tax return Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. How to file a 2012 tax return The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. How to file a 2012 tax return This existing special rule applies if you are a U. How to file a 2012 tax return S. How to file a 2012 tax return citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. How to file a 2012 tax return S. How to file a 2012 tax return assets during the 10-year period beginning when you became a bona fide resident. How to file a 2012 tax return The gain is U. How to file a 2012 tax return S. How to file a 2012 tax return source income that generally is subject to U. How to file a 2012 tax return S. How to file a 2012 tax return tax if the property is either (1) located in the United States; (2) stock issued by a U. How to file a 2012 tax return S. How to file a 2012 tax return corporation or a debt obligation of a U. How to file a 2012 tax return S. How to file a 2012 tax return person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). How to file a 2012 tax return See chapter 3 for filing information. How to file a 2012 tax return Special election. How to file a 2012 tax return   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. How to file a 2012 tax return Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. How to file a 2012 tax return This election overrides both of the special rules discussed earlier. How to file a 2012 tax return   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. How to file a 2012 tax return Marketable securities. How to file a 2012 tax return   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. How to file a 2012 tax return Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. How to file a 2012 tax return S. How to file a 2012 tax return holding periods. How to file a 2012 tax return   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. How to file a 2012 tax return The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. How to file a 2012 tax return This is your gain (or loss) that is treated as being from sources within the relevant possession. How to file a 2012 tax return If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. How to file a 2012 tax return Example 2. How to file a 2012 tax return Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. How to file a 2012 tax return S. How to file a 2012 tax return and possession holding periods. How to file a 2012 tax return Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. How to file a 2012 tax return Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). How to file a 2012 tax return By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. How to file a 2012 tax return Other personal property. How to file a 2012 tax return   For personal property other than marketable securities, use a time-based allocation. How to file a 2012 tax return Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. How to file a 2012 tax return      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. How to file a 2012 tax return Example 3. How to file a 2012 tax return In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. How to file a 2012 tax return On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. How to file a 2012 tax return On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. How to file a 2012 tax return She had owned the interest for a total of 1,720 days. How to file a 2012 tax return Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. How to file a 2012 tax return The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). How to file a 2012 tax return By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. How to file a 2012 tax return Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. How to file a 2012 tax return Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. How to file a 2012 tax return These rules do not apply to amounts paid as salary or other compensation for services. How to file a 2012 tax return See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. How to file a 2012 tax return Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. How to file a 2012 tax return These circumstances are listed below. How to file a 2012 tax return You have an office or other fixed place of business in the relevant possession to which the income can be attributed. How to file a 2012 tax return That office or place of business is a material factor in producing the income. How to file a 2012 tax return The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. How to file a 2012 tax return An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. How to file a 2012 tax return The three kinds of income from sources outside the relevant possession to which these rules apply are the following. How to file a 2012 tax return Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. How to file a 2012 tax return Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. How to file a 2012 tax return Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. How to file a 2012 tax return Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. How to file a 2012 tax return Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. How to file a 2012 tax return Example. How to file a 2012 tax return Marcy Jackson is a bona fide resident of American Samoa. How to file a 2012 tax return Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. How to file a 2012 tax return A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. How to file a 2012 tax return Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. How to file a 2012 tax return The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. How to file a 2012 tax return However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. How to file a 2012 tax return Prev  Up  Next   Home   More Online Publications