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Income Tax For Students

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Income Tax For Students

Income tax for students 6. Income tax for students   Dual-Status Tax Year Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tax Year Income Subject to Tax Restrictions for Dual-Status Taxpayers Exemptions How To Figure TaxIncome Tax Credits and Payments Forms To File When and Where To File Introduction You have a dual-status tax year when you have been both a resident alien and a nonresident alien in the same year. Income tax for students Dual status does not refer to your citizenship; it refers only to your resident status in the United States. Income tax for students In determining your U. Income tax for students S. Income tax for students income tax liability for a dual-status tax year, different rules apply for the part of the year you are a resident of the United States and the part of the year you are a nonresident. Income tax for students The most common dual-status tax years are the years of arrival and departure. Income tax for students See Dual-Status Aliens in chapter 1. Income tax for students If you are married and choose to be treated as a U. Income tax for students S. Income tax for students resident for the entire year, as explained in chapter 1, the rules of this chapter do not apply to you for that year. Income tax for students Topics - This chapter discusses: Income subject to tax, Restrictions for dual-status taxpayers, Exemptions, How to figure the tax, Forms to file, When and where to file, and How to fill out a dual-status return. Income tax for students Useful Items - You may want to see: Publication 503 Child and Dependent Care Expenses 514 Foreign Tax Credit for Individuals 575 Pension and Annuity Income Form (and Instructions) 1040 U. Income tax for students S. Income tax for students Individual Income Tax Return 1040-C U. Income tax for students S. Income tax for students Departing Alien Income Tax Return 1040-ES Estimated Tax for Individuals 1040-ES (NR) U. Income tax for students S. Income tax for students Estimated Tax for Nonresident Alien Individuals 1040NR U. Income tax for students S. Income tax for students Nonresident Alien Income Tax Return 1116 Foreign Tax Credit See chapter 12 for information about getting these publications and forms. Income tax for students Tax Year You must file your tax return on the basis of an annual accounting period called a tax year. Income tax for students If you have not previously established a fiscal tax year, your tax year is the calendar year. Income tax for students A calendar year is 12 consecutive months ending on December 31. Income tax for students If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December, or a 52–53 week year) and are considered to be a U. Income tax for students S. Income tax for students resident for any calendar year, you will be treated as a U. Income tax for students S. Income tax for students resident for any part of your fiscal year that falls within that calendar year. Income tax for students Income Subject to Tax For the part of the year you are a resident alien, you are taxed on income from all sources. Income tax for students Income from sources outside the United States is taxable if you receive it while you are a resident alien. Income tax for students The income is taxable even if you earned it while you were a nonresident alien or if you became a nonresident alien after receiving it and before the end of the year. Income tax for students For the part of the year you are a nonresident alien, you are taxed on income from U. Income tax for students S. Income tax for students sources and on certain foreign source income treated as effectively connected with a U. Income tax for students S. Income tax for students trade or business. Income tax for students (The rules for treating foreign source income as effectively connected are discussed in chapter 4 under Foreign Income. Income tax for students ) Income from sources outside the United States that is not effectively connected with a trade or business in the United States is not taxable if you receive it while you are a nonresident alien. Income tax for students The income is not taxable even if you earned it while you were a resident alien or if you became a resident alien or a U. Income tax for students S. Income tax for students citizen after receiving it and before the end of the year. Income tax for students Income from U. Income tax for students S. Income tax for students sources is taxable whether you receive it while a nonresident alien or a resident alien unless specifically exempt under the Internal Revenue Code or a tax treaty provision. Income tax for students Generally, tax treaty provisions apply only to the part of the year you were a nonresident. Income tax for students In certain cases, however, treaty provisions may apply while you were a resident alien. Income tax for students See chapter 9 for more information. Income tax for students When determining what income is taxed in the United States, you must consider exemptions under U. Income tax for students S. Income tax for students tax law as well as the reduced tax rates and exemptions provided by tax treaties between the United States and certain foreign countries. Income tax for students For a further discussion of tax treaties, see chapter 9. Income tax for students Restrictions for Dual-Status Taxpayers The following restrictions apply if you are filing a tax return for a dual-status tax year. Income tax for students 1) Standard deduction. Income tax for students   You cannot use the standard deduction allowed on Form 1040. Income tax for students However, you can itemize any allowable deductions. Income tax for students 2) Exemptions. Income tax for students   Your total deduction for the exemptions for your spouse and allowable dependents cannot be more than your taxable income (figured without deducting personal exemptions) for the period you are a resident alien. Income tax for students 3) Head of household. Income tax for students   You cannot use the head of household Tax Table column or Tax Computation Worksheet. Income tax for students 4) Joint return. Income tax for students   You cannot file a joint return. Income tax for students However, see Choosing Resident Alien Status under Dual-Status Aliens in chapter 1. Income tax for students 5) Tax rates. Income tax for students   If you are married and a nonresident of the United States for all or part of the tax year and you do not choose to file jointly as discussed in chapter 1, you must use the Tax Table column or Tax Computation Worksheet for married filing separately to figure your tax on income effectively connected with a U. Income tax for students S. Income tax for students trade or business. Income tax for students You cannot use the Tax Table column or Tax Computation Worksheet for married filing jointly or single. Income tax for students However, you may be able to file as single if you lived apart from your spouse during the last 6 months of the year and you are a: Married resident of Canada, Mexico, or South Korea, or Married U. Income tax for students S. Income tax for students national. Income tax for students  See the instructions for Form 1040NR to see if you qualify. Income tax for students    A U. Income tax for students S. Income tax for students national is an individual who, although not a U. Income tax for students S. Income tax for students citizen, owes his or her allegiance to the United States. Income tax for students U. Income tax for students S. Income tax for students nationals include American Samoans and Northern Mariana Islanders who chose to become U. Income tax for students S. Income tax for students nationals instead of U. Income tax for students S. Income tax for students citizens. Income tax for students 6) Tax credits. Income tax for students   You cannot claim the education credits, the earned income credit, or the credit for the elderly or the disabled unless: You are married, and You choose to be treated as a resident for all of 2013 by filing a joint return with your spouse who is a U. Income tax for students S. Income tax for students citizen or resident, as discussed in chapter 1. Income tax for students Exemptions As a dual-status taxpayer, you usually will be able to claim your own personal exemption. Income tax for students Subject to the general rules for qualification, you can claim exemptions for your spouse and dependents when you figure taxable income for the part of the year you are a resident alien. Income tax for students The amount you can claim for these exemptions is limited to your taxable income (figured before subtracting exemptions) for the part of the year you are a resident alien. Income tax for students You cannot use exemptions (other than your own) to reduce taxable income to less than zero for that period. Income tax for students Special rules apply to exemptions for the part of the tax year you are a nonresident alien if you are a: Resident of Canada, Mexico, or South Korea, U. Income tax for students S. Income tax for students national, or Student or business apprentice from India. Income tax for students For more information, see Exemptions in chapter 5. Income tax for students How To Figure Tax When you figure your U. Income tax for students S. Income tax for students tax for a dual-status year, you are subject to different rules for the part of the year you are a resident and the part of the year you are a nonresident. Income tax for students Income All income for your period of residence and all income that is effectively connected with a trade or business in the United States for your period of nonresidence, after allowable deductions, is added and taxed at the rates that apply to U. Income tax for students S. Income tax for students citizens and residents. Income tax for students Income that is not connected with a trade or business in the United States for your period of nonresidence is subject to the flat 30% rate or lower treaty rate. Income tax for students You cannot take any deductions against this income. Income tax for students Social security and railroad retirement benefits. Income tax for students   During the part of the year you are a nonresident alien, 85% of any U. Income tax for students S. Income tax for students social security benefits (and the equivalent portion of tier 1 railroad retirement benefits) you receive is subject to the flat 30% tax, unless exempt, or subject to a lower treaty rate. Income tax for students (See The 30% Tax in chapter 4. Income tax for students )   During the part of the year you are a resident alien, part of the social security and the equivalent portion of tier 1 railroad retirement benefits will be taxed at graduated rates if your modified adjusted gross income plus half of these benefits is more than a certain base amount. Income tax for students Use the Social Security Benefits Worksheet in the Form 1040 instructions to help you figure the taxable part of your social security and equivalent tier 1 railroad retirement benefits for the part of the year you were a resident alien. Income tax for students If you received U. Income tax for students S. Income tax for students social security benefits while you were a nonresident alien, the Social Security Administration will send you Form SSA-1042S showing your combined benefits for the entire year and the amount of tax withheld. Income tax for students You will not receive separate statements for the benefits received during your periods of U. Income tax for students S. Income tax for students residence and nonresidence. Income tax for students Therefore, it is important for you to keep careful records of these amounts. Income tax for students You will need this information to properly complete your return and determine your tax liability. Income tax for students If you received railroad retirement benefits while you were a nonresident alien, the U. Income tax for students S. Income tax for students Railroad Retirement Board (RRB) will send you Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, and/or Form RRB-1099-R, Annuities or Pensions by the Railroad Retirement Board. Income tax for students If your country of legal residence changed or your rate of tax changed during the tax year, you may receive more than one form. Income tax for students Tax Credits and Payments This discussion covers tax credits and payments for dual-status aliens. Income tax for students Credits As a dual-status alien, you generally can claim tax credits using the same rules that apply to resident aliens. Income tax for students There are certain restrictions that may apply. Income tax for students These restrictions are discussed here, along with a brief explanation of credits often claimed by individuals. Income tax for students Foreign tax credit. Income tax for students   If you have paid or are liable for the payment of income tax to a foreign country on income from foreign sources, you may be able to claim a credit for the foreign taxes. Income tax for students   If you claim the foreign tax credit, you generally must file Form 1116 with your income tax return. Income tax for students For more information, see the Instructions for Form 1116 and Publication 514. Income tax for students Child and dependent care credit. Income tax for students   You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse so that you can work or look for work. Income tax for students Generally, you must be able to claim an exemption for your dependent. Income tax for students   Married dual-status aliens can claim the credit only if they choose to file a joint return as discussed in chapter 1, or if they qualify as certain married individuals living apart. Income tax for students   The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income for that tax year. Income tax for students   For more information, get Publication 503 and Form 2441. Income tax for students Retirement savings contributions credit. Income tax for students   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. Income tax for students You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than $29,500. Income tax for students Use Form 8880 to figure the credit. Income tax for students For more information, see Publication 590. Income tax for students Child tax credit. Income tax for students   You may be able to take this credit if you have a qualifying child. Income tax for students   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. Income tax for students Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Income tax for students Is a U. Income tax for students S. Income tax for students citizen, a U. Income tax for students S. Income tax for students national, or a resident alien. Income tax for students Did not provide over half of his or her own support for 2013. Income tax for students Lived with you more than half of 2013. Income tax for students Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. Income tax for students Is claimed as a dependent on your return. Income tax for students An adopted child is always treated as your own child. Income tax for students An adopted child includes a child lawfully placed with you for legal adoption. Income tax for students   See your form instructions for additional details. Income tax for students Adoption credit. Income tax for students   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. Income tax for students This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. Income tax for students To claim the adoption credit, file Form 8839 with the U. Income tax for students S. Income tax for students income tax return that you file. Income tax for students   Married dual-status aliens can claim the credit only if they choose to file a joint return with a U. Income tax for students S. Income tax for students citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Not Filing Jointly in the Form 8839 instructions). Income tax for students Payments You can report as payments against your U. Income tax for students S. Income tax for students income tax liability certain taxes you paid, are considered to have paid, or that were withheld from your income. Income tax for students These include: Tax withheld from wages earned in the United States, Taxes withheld at the source from various items of income from U. Income tax for students S. Income tax for students sources other than wages, Estimated tax paid with Form 1040-ES or Form 1040-ES (NR), and Tax paid with Form 1040-C, at the time of departure from the United States. Income tax for students Forms To File The U. Income tax for students S. Income tax for students income tax return you must file as a dual-status alien depends on whether you are a resident alien or a nonresident alien at the end of the tax year. Income tax for students Resident at end of year. Income tax for students   You must file Form 1040 if you are a dual-status taxpayer who becomes a resident during the year and who is a U. Income tax for students S. Income tax for students resident on the last day of the tax year. Income tax for students Write “Dual-Status Return” across the top of the return. Income tax for students Attach a statement to your return to show the income for the part of the year you are a nonresident. Income tax for students You can use Form 1040NR or Form 1040NR-EZ as the statement, but be sure to mark “Dual-Status Statement” across the top. Income tax for students Nonresident at end of year. Income tax for students   You must file Form 1040NR or Form 1040NR-EZ if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U. Income tax for students S. Income tax for students resident on the last day of the tax year. Income tax for students Write “Dual-Status Return” across the top of the return. Income tax for students Attach a statement to your return to show the income for the part of the year you are a resident. Income tax for students You can use Form 1040 as the statement, but be sure to mark “Dual-Status Statement” across the top. Income tax for students   If you expatriated or terminated your residency in 2013, you may be required to file an expatriation statement (Form 8854) with your tax return. Income tax for students For more information, see Expatriation Tax in chapter 4. Income tax for students Statement. Income tax for students   Any statement must have your name, address, and taxpayer identification number on it. Income tax for students You do not need to sign a separate statement or schedule accompanying your return, because your signature on the return also applies to the supporting statements and schedules. Income tax for students When and Where To File If you are a resident alien on the last day of your tax year and report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year. Income tax for students If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. Income tax for students In either case, file your return with the address for dual-status aliens shown on the back page of the Form 1040 instructions. Income tax for students If you are a nonresident alien on the last day of your tax year and you report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year if you receive wages subject to withholding. Income tax for students If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. Income tax for students If you did not receive wages subject to withholding and you report your income on a calendar year basis, you must file no later than June 15 of the year following the close of your tax year. Income tax for students If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 6th month following the close of your tax year. Income tax for students In any case, mail your return to:  Department of the Treasury Internal Revenue Service  Austin, TX 73301-0215 If enclosing a payment, mail your return to:  Internal Revenue Service  P. Income tax for students O. Income tax for students Box 1303 Charlotte, NC 28201-1303 If the regular due date for filing falls on a Saturday, Sunday, or legal holiday, the due date is the next day that is not a Saturday, Sunday, or legal holiday. Income tax for students Prev  Up  Next   Home   More Online Publications
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The Income Tax For Students

Income tax for students 2. Income tax for students   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. Income tax for students 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. Income tax for students Deduction may depend on your type of business. Income tax for students Exception for events that benefit charitable organizations. Income tax for students Food and beverages in skybox seats. Income tax for students What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. Income tax for students You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Income tax for students The rules and definitions are summarized in Table 2-1 . Income tax for students You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. Income tax for students Directly-related test. Income tax for students Associated test. Income tax for students Both of these tests are explained later. Income tax for students An ordinary expense is one that is common and accepted in your trade or business. Income tax for students A necessary expense is one that is helpful and appropriate for your business. Income tax for students An expense does not have to be required to be considered necessary. Income tax for students The amount you can deduct for entertainment expenses may be limited. Income tax for students Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Income tax for students This limit is discussed later under 50% Limit. Income tax for students Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. Income tax for students Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Income tax for students Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. Income tax for students See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. Income tax for students You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. Income tax for students It is not necessary to devote more time to business than to entertainment. Income tax for students However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. Income tax for students Table 2-1. Income tax for students When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Income tax for students Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Income tax for students An ordinary expense is one that is common and accepted in your trade or business. Income tax for students A necessary expense is one that is helpful and appropriate. Income tax for students Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Income tax for students   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. Income tax for students Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Income tax for students You cannot deduct expenses that are lavish or extravagant under the circumstances. Income tax for students You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). Income tax for students You do not have to show that business income or other business benefit actually resulted from each entertainment expense. Income tax for students Clear business setting. Income tax for students   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. Income tax for students The following situations are examples of entertainment in a clear business setting. Income tax for students Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. Income tax for students Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). Income tax for students Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. Income tax for students An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. Income tax for students Expenses not considered directly related. Income tax for students   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. Income tax for students The following are examples of situations where there are substantial distractions. Income tax for students A meeting or discussion at a nightclub, theater, or sporting event. Income tax for students A meeting or discussion during what is essentially a social gathering, such as a cocktail party. Income tax for students A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. Income tax for students Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. Income tax for students To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). Income tax for students Associated with trade or business. Income tax for students   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. Income tax for students The purpose may be to get new business or to encourage the continuation of an existing business relationship. Income tax for students Substantial business discussion. Income tax for students   Whether a business discussion is substantial depends on the facts of each case. Income tax for students A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. Income tax for students   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. Income tax for students It is not necessary that you devote more time to business than to entertainment. Income tax for students You do not have to discuss business during the meal or entertainment. Income tax for students Meetings at conventions. Income tax for students   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. Income tax for students However, your reason for attending the convention or meeting must be to further your trade or business. Income tax for students The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. Income tax for students Directly before or after business discussion. Income tax for students   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. Income tax for students   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. Income tax for students Among the facts to consider are the place, date, and duration of the business discussion. Income tax for students If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. Income tax for students Example. Income tax for students A group of business associates comes from out of town to your place of business to hold a substantial business discussion. Income tax for students If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. Income tax for students The expense meets the associated test. Income tax for students 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Income tax for students (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. Income tax for students See Individuals subject to “hours of service” limits , later. Income tax for students ) 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. Income tax for students Figure A summarizes the general rules explained in this section. Income tax for students 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. Income tax for students Included expenses. Income tax for students   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. Income tax for students However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Income tax for students Figure A. Income tax for students Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Income tax for students See Exceptions to the 50% Limit . Income tax for students Please click here for the text description of the image. Income tax for students Figure A. Income tax for students Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. Income tax for students   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. Income tax for students   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Income tax for students It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. Income tax for students It also applies to the cost of meals included in deductible educational expenses. Income tax for students When to apply the 50% limit. Income tax for students   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Income tax for students You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. Income tax for students Example 1. Income tax for students You spend $200 for a business-related meal. Income tax for students If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Income tax for students Your deduction cannot be more than $45 (50% × $90). Income tax for students Example 2. Income tax for students You purchase two tickets to a concert and give them to a client. Income tax for students You purchased the tickets through a ticket agent. Income tax for students You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Income tax for students Your deduction cannot be more than $80 (50% × $160). Income tax for students Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Income tax for students Figure A can help you determine if the 50% limit applies to you. Income tax for students Expenses not subject to 50% limit. Income tax for students   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Income tax for students 1 - Employee's reimbursed expenses. Income tax for students   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. Income tax for students Accountable plans are discussed in chapter 6. Income tax for students 2 - Self-employed. Income tax for students   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. Income tax for students You have these expenses as an independent contractor. Income tax for students Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. Income tax for students You provide adequate records of these expenses to your customer or client. Income tax for students (See chapter 5 . Income tax for students )   In this case, your client or customer is subject to the 50% limit on the expenses. Income tax for students Example. Income tax for students You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. Income tax for students You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. Income tax for students If the client can deduct the expenses, the client is subject to the 50% limit. Income tax for students If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. Income tax for students 3 - Advertising expenses. Income tax for students   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Income tax for students For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. Income tax for students 4 - Sale of meals or entertainment. Income tax for students   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. Income tax for students For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. Income tax for students 5 - Charitable sports event. Income tax for students   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. Income tax for students For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. Income tax for students Individuals subject to “hours of service” limits. Income tax for students   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. Income tax for students The percentage is 80%. Income tax for students   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Income tax for students Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Income tax for students Interstate truck operators and bus drivers who are under Department of Transportation regulations. Income tax for students Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Income tax for students Certain merchant mariners who are under Coast Guard regulations. Income tax for students What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Income tax for students Entertainment. Income tax for students   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Income tax for students Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Income tax for students   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. Income tax for students A meal as a form of entertainment. Income tax for students   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. Income tax for students A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Income tax for students To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Income tax for students    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Income tax for students    Meals sold in the normal course of your business are not considered entertainment. Income tax for students Deduction may depend on your type of business. Income tax for students   Your kind of business may determine if a particular activity is considered entertainment. Income tax for students For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. Income tax for students This is because fashion shows are typical in your business. Income tax for students But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. Income tax for students Separating costs. Income tax for students   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. Income tax for students You must have a reasonable basis for making this allocation. Income tax for students For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Income tax for students Taking turns paying for meals or entertainment. Income tax for students   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Income tax for students Lavish or extravagant expenses. Income tax for students   You cannot deduct expenses for entertainment that are lavish or extravagant. Income tax for students An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Income tax for students 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. Income tax for students Allocating between business and nonbusiness. Income tax for students   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. Income tax for students You can deduct only the business part. Income tax for students If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. Income tax for students Example. Income tax for students You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. Income tax for students Only 4/11 of the expense qualifies as a business entertainment expense. Income tax for students You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. Income tax for students Trade association meetings. Income tax for students   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. Income tax for students These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Income tax for students Entertainment tickets. Income tax for students   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Income tax for students 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. Income tax for students Exception for events that benefit charitable organizations. Income tax for students   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. Income tax for students You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. Income tax for students The event's main purpose is to benefit a qualified charitable organization. Income tax for students The entire net proceeds go to the charity. Income tax for students The event uses volunteers to perform substantially all the event's work. Income tax for students    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. Income tax for students Example 1. Income tax for students You purchase tickets to a golf tournament organized by the local volunteer fire company. Income tax for students All net proceeds will be used to buy new fire equipment. Income tax for students The volunteers will run the tournament. Income tax for students You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. Income tax for students Example 2. Income tax for students You purchase tickets to a college football game through a ticket broker. Income tax for students After having a business discussion, you take a client to the game. Income tax for students Net proceeds from the game go to colleges that qualify as charitable organizations. Income tax for students However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. Income tax for students Skyboxes and other private luxury boxes. Income tax for students   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. Income tax for students   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. Income tax for students For example, renting a skybox for a series of playoff games is considered renting it for more than one event. Income tax for students All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. Income tax for students   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. Income tax for students Example. Income tax for students You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. Income tax for students The cost of regular nonluxury box seats at each event is $30 a seat. Income tax for students You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). Income tax for students Food and beverages in skybox seats. Income tax for students   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. Income tax for students The amounts separately stated for food and beverages must be reasonable. Income tax for students You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. Income tax for students What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Income tax for students Club dues and membership fees. Income tax for students   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Income tax for students 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, discussed later. Income tax for students   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Income tax for students 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. Income tax for students Entertainment facilities. Income tax for students   Generally, you cannot deduct any expense for the use of an entertainment facility. Income tax for students This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Income tax for students   An entertainment facility is any property you own, rent, or use for entertainment. Income tax for students 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. Income tax for students Out-of-pocket expenses. Income tax for students   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. Income tax for students These are not expenses for the use of an entertainment facility. Income tax for students However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. Income tax for students Expenses for spouses. Income tax for students   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. Income tax for students However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. Income tax for students Example. Income tax for students You entertain a customer. Income tax for students The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. Income tax for students The customer's spouse joins you because it is impractical to entertain the customer without the spouse. Income tax for students You can deduct the cost of entertaining the customer's spouse. Income tax for students If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. Income tax for students Gift or entertainment. Income tax for students   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Income tax for students However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. Income tax for students   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. Income tax for students You can treat the tickets as either a gift or entertainment, whichever is to your advantage. Income tax for students   You can change your treatment of the tickets at a later date by filing an amended return. Income tax for students Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Income tax for students   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Income tax for students You cannot choose, in this case, to treat the tickets as a gift. Income tax for students Prev  Up  Next   Home   More Online Publications