Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Self Employment Tax Forms

E File IrsFirstgov GovTurbo Tax 2010 20112011 Tax Return TurbotaxFree State Tax UsaWhere To Mail State TaxesCompleted 1040x ExampleFiling 2009 Taxes Late Online For Free1040ez 2011 OnlineForm 1040 XFree State And Federal Tax Filing TurbotaxFiling Previous Year TaxesAmend Irs ReturnCan I Efile A 1040xHow To File Your 2012 Tax Return2011 Tax Forms IrsAmend TaxHow To File A 1040x1040ez For 2010Form 1040ez 2012Past Year Tax Forms2009 10401040ez 2011 InstructionsTaxact 2012 LoginAmend 1040ez Tax Form1040ez Free File OnlineH&r Block AdvantageHow Do You Fill Out A 1040x FormFree State Taxes Efile1040ez Tax BookletEfileH&r Block Free Tax FilingOnline Tax FilingForm 1040 2010Filing State TaxTaxcut Online1040ez Form For 2012File 2012 Taxes Free1040ez Form Line 5Amended Tax Form

Self Employment Tax Forms

Self employment tax forms Publication 15-A - Additional Material Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

The American Recovery and Reinvestment Act of 2009

Contractor Name

Award #

Category

Obligated Value

Date of Award

Presidio Networked Solutions, Inc. TIRNO-99-Z-00002, DO 00731, Modification 0045

Tax Provisions

$535,500.00

01/12/2011

Macro International TIRNO-05-Z-00012, DO 0030 HCTC $52,008.00

09/22/2010

Lockheed Martin TIRNO-06-D-00013, DO 0030, Modification 0020

Tax Provisions

$32,269.00

06/23/2010

Lockheed Martin TIRNO-06-D-00013, DO 0030, Modification 0013 Tax Provisions $0.00

04/27/2010

Information Systems Consulting Group TIRNO-06-D-00024, DO 0006, Modification 0002 HCTC $88,707.20

04/12/2010

Lockheed Martin TIRNO-06-D-00013, DO 0030, Modification 0009

Tax Provisions

$27,963.00

12/22/2009

Accenture LLP TIRNO-06-D-00006, DO 0008, Modification 0019 HCTC $13,790,162.00

12/14/2009

Accenture LLP TIRNO-06-D-00006, DO 0008, Modification 0018 HCTC $60,000.00

09/29/2009

AT&T TIRNO-04-Z-00007, DO 0110

Tax Provisions

$520,159.00

09/29/2009

Macro International TIRNO-05-Z-00012, DO 0026, Modification 0002 HCTC $98,312.00

09/15/2009

Accenture LLP TIRNO-06-D-00006, DO 0008, Modification 0013 HCTC $20,000.00

 04/17/2009

Page Last Reviewed or Updated: 03-Feb-2014

The Self Employment Tax Forms

Self employment tax forms 1. Self employment tax forms   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Self employment tax forms At-risk limits. Self employment tax forms Passive activities. Self employment tax forms Net operating loss. Self employment tax forms When Can I Deduct an Expense?Economic performance. Self employment tax forms Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Self employment tax forms  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Self employment tax forms See Optional safe harbor method under Business use of your home , later. Self employment tax forms Introduction This chapter covers the general rules for deducting business expenses. Self employment tax forms Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Self employment tax forms Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Self employment tax forms What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Self employment tax forms An ordinary expense is one that is common and accepted in your industry. Self employment tax forms A necessary expense is one that is helpful and appropriate for your trade or business. Self employment tax forms An expense does not have to be indispensable to be considered necessary. Self employment tax forms Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Self employment tax forms In some cases you may not be allowed to deduct the expense at all. Self employment tax forms Therefore, it is important to distinguish usual business expenses from expenses that include the following. Self employment tax forms The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Self employment tax forms Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Self employment tax forms Some of your business expenses may be included in figuring cost of goods sold. Self employment tax forms Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Self employment tax forms If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Self employment tax forms The following are types of expenses that go into figuring cost of goods sold. Self employment tax forms The cost of products or raw materials, including freight. Self employment tax forms Storage. Self employment tax forms Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Self employment tax forms Factory overhead. Self employment tax forms Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Self employment tax forms Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Self employment tax forms This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Self employment tax forms For more information, see the following sources. Self employment tax forms Cost of goods sold—chapter 6 of Publication 334. Self employment tax forms Inventories—Publication 538. Self employment tax forms Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Self employment tax forms Capital Expenses You must capitalize, rather than deduct, some costs. Self employment tax forms These costs are a part of your investment in your business and are called “capital expenses. Self employment tax forms ” Capital expenses are considered assets in your business. Self employment tax forms In general, you capitalize three types of costs. Self employment tax forms Business start-up costs (See Tip below). Self employment tax forms Business assets. Self employment tax forms Improvements. Self employment tax forms You can elect to deduct or amortize certain business start-up costs. Self employment tax forms See chapters 7 and 8. Self employment tax forms Cost recovery. Self employment tax forms   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Self employment tax forms These recovery methods allow you to deduct part of your cost each year. Self employment tax forms In this way, you are able to recover your capital expense. Self employment tax forms See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Self employment tax forms A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Self employment tax forms A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Self employment tax forms See Publication 946 for details. Self employment tax forms Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Self employment tax forms These costs may include expenses for advertising, travel, or wages for training employees. Self employment tax forms If you go into business. Self employment tax forms   When you go into business, treat all costs you had to get your business started as capital expenses. Self employment tax forms   Usually you recover costs for a particular asset through depreciation. Self employment tax forms Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Self employment tax forms However, you can choose to amortize certain costs for setting up your business. Self employment tax forms See Starting a Business in chapter 8 for more information on business start-up costs. Self employment tax forms If your attempt to go into business is unsuccessful. Self employment tax forms   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Self employment tax forms The costs you had before making a decision to acquire or begin a specific business. Self employment tax forms These costs are personal and nondeductible. Self employment tax forms They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Self employment tax forms The costs you had in your attempt to acquire or begin a specific business. Self employment tax forms These costs are capital expenses and you can deduct them as a capital loss. Self employment tax forms   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Self employment tax forms   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Self employment tax forms You cannot take a deduction for these costs. Self employment tax forms You will recover the costs of these assets when you dispose of them. Self employment tax forms Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Self employment tax forms You must fully capitalize the cost of these assets, including freight and installation charges. Self employment tax forms Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Self employment tax forms See Regulations section 1. Self employment tax forms 263A-2 for information on these rules. Self employment tax forms Improvements Improvements are generally major expenditures. Self employment tax forms Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Self employment tax forms The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Self employment tax forms Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Self employment tax forms Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Self employment tax forms However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Self employment tax forms Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Self employment tax forms Restoration plan. Self employment tax forms   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Self employment tax forms This applies even if some of the work would by itself be classified as repairs. Self employment tax forms Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Self employment tax forms Motor vehicles. Self employment tax forms   You usually capitalize the cost of a motor vehicle you use in your business. Self employment tax forms You can recover its cost through annual deductions for depreciation. Self employment tax forms   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Self employment tax forms See Publication 463. Self employment tax forms   Generally, repairs you make to your business vehicle are currently deductible. Self employment tax forms However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Self employment tax forms Roads and driveways. Self employment tax forms    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Self employment tax forms The cost of maintaining a private road on your business property is a deductible expense. Self employment tax forms Tools. Self employment tax forms   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Self employment tax forms Machinery parts. Self employment tax forms   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Self employment tax forms Heating equipment. Self employment tax forms   The cost of changing from one heating system to another is a capital expense. Self employment tax forms Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Self employment tax forms However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Self employment tax forms You can deduct the business part. Self employment tax forms For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Self employment tax forms The remaining 30% is personal interest and generally is not deductible. Self employment tax forms See chapter 4 for information on deducting interest and the allocation rules. Self employment tax forms Business use of your home. Self employment tax forms   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Self employment tax forms These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Self employment tax forms   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Self employment tax forms The business part of your home must be used exclusively and regularly for your trade or business. Self employment tax forms The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Self employment tax forms   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Self employment tax forms   Your home office qualifies as your principal place of business if you meet the following requirements. Self employment tax forms You use the office exclusively and regularly for administrative or management activities of your trade or business. Self employment tax forms You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Self employment tax forms   If you have more than one business location, determine your principal place of business based on the following factors. Self employment tax forms The relative importance of the activities performed at each location. Self employment tax forms If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Self employment tax forms Optional safe harbor method. Self employment tax forms   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Self employment tax forms This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Self employment tax forms   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Self employment tax forms Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Self employment tax forms You are not required to allocate these deductions between personal and business use, as is required under the regular method. Self employment tax forms If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Self employment tax forms   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Self employment tax forms All of the requirements discussed earlier under Business use of your home still apply. Self employment tax forms   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Self employment tax forms    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Self employment tax forms Business use of your car. Self employment tax forms   If you use your car exclusively in your business, you can deduct car expenses. Self employment tax forms If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Self employment tax forms Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Self employment tax forms   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Self employment tax forms Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Self employment tax forms Beginning in 2013, the standard mileage rate is 56. Self employment tax forms 5 cents per mile. Self employment tax forms   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Self employment tax forms   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Self employment tax forms How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Self employment tax forms Recovery of amount deducted (tax benefit rule). Self employment tax forms   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Self employment tax forms If you have a recovery in a later year, include the recovered amount in income in that year. Self employment tax forms However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Self employment tax forms   For more information on recoveries and the tax benefit rule, see Publication 525. Self employment tax forms Payments in kind. Self employment tax forms   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Self employment tax forms You cannot deduct the cost of your own labor. Self employment tax forms   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Self employment tax forms If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Self employment tax forms Limits on losses. Self employment tax forms   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Self employment tax forms There may be limits on how much of the loss you can deduct. Self employment tax forms Not-for-profit limits. Self employment tax forms   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Self employment tax forms See Not-for-Profit Activities , later. Self employment tax forms At-risk limits. Self employment tax forms   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Self employment tax forms You are at risk in any activity for the following. Self employment tax forms The money and adjusted basis of property you contribute to the activity. Self employment tax forms Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Self employment tax forms For more information, see Publication 925. Self employment tax forms Passive activities. Self employment tax forms   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Self employment tax forms In general, deductions for losses from passive activities only offset income from passive activities. Self employment tax forms You cannot use any excess deductions to offset other income. Self employment tax forms In addition, passive activity credits can only offset the tax on net passive income. Self employment tax forms Any excess loss or credits are carried over to later years. Self employment tax forms Suspended passive losses are fully deductible in the year you completely dispose of the activity. Self employment tax forms For more information, see Publication 925. Self employment tax forms Net operating loss. Self employment tax forms   If your deductions are more than your income for the year, you may have a “net operating loss. Self employment tax forms ” You can use a net operating loss to lower your taxes in other years. Self employment tax forms See Publication 536 for more information. Self employment tax forms   See Publication 542 for information about net operating losses of corporations. Self employment tax forms When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Self employment tax forms An accounting method is a set of rules used to determine when and how income and expenses are reported. Self employment tax forms The two basic methods are the cash method and the accrual method. Self employment tax forms Whichever method you choose must clearly reflect income. Self employment tax forms For more information on accounting methods, see Publication 538. Self employment tax forms Cash method. Self employment tax forms   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Self employment tax forms Accrual method. Self employment tax forms   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Self employment tax forms The all-events test has been met. Self employment tax forms The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Self employment tax forms Economic performance has occurred. Self employment tax forms Economic performance. Self employment tax forms   You generally cannot deduct or capitalize a business expense until economic performance occurs. Self employment tax forms If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Self employment tax forms If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Self employment tax forms Example. Self employment tax forms Your tax year is the calendar year. Self employment tax forms In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Self employment tax forms You paid it by check in January 2014. Self employment tax forms If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Self employment tax forms If you use the cash method of accounting, deduct the expense on your 2014 return. Self employment tax forms Prepayment. Self employment tax forms   You generally cannot deduct expenses in advance, even if you pay them in advance. Self employment tax forms This rule applies to both the cash and accrual methods. Self employment tax forms It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Self employment tax forms Example. Self employment tax forms In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Self employment tax forms Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Self employment tax forms You can deduct the rent for 2014 and 2015 on your tax returns for those years. Self employment tax forms Contested liability. Self employment tax forms   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Self employment tax forms Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Self employment tax forms S. Self employment tax forms possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Self employment tax forms However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Self employment tax forms See Regulations section 1. Self employment tax forms 461-2. Self employment tax forms Related person. Self employment tax forms   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Self employment tax forms However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Self employment tax forms Your deduction is allowed when the amount is includible in income by the related cash method payee. Self employment tax forms See Related Persons in Publication 538. Self employment tax forms Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Self employment tax forms Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Self employment tax forms The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Self employment tax forms It does not apply to corporations other than S corporations. Self employment tax forms In determining whether you are carrying on an activity for profit, several factors are taken into account. Self employment tax forms No one factor alone is decisive. Self employment tax forms Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Self employment tax forms Presumption of profit. Self employment tax forms   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Self employment tax forms Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Self employment tax forms The activity must be substantially the same for each year within this period. Self employment tax forms You have a profit when the gross income from an activity exceeds the deductions. Self employment tax forms   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Self employment tax forms   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Self employment tax forms This means the limits discussed here will not apply. Self employment tax forms You can take all your business deductions from the activity, even for the years that you have a loss. Self employment tax forms You can rely on this presumption unless the IRS later shows it to be invalid. Self employment tax forms Using the presumption later. Self employment tax forms   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Self employment tax forms   You can elect to do this by filing Form 5213. Self employment tax forms Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Self employment tax forms   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Self employment tax forms Accordingly, it will not restrict your deductions. Self employment tax forms Rather, you will gain time to earn a profit in the required number of years. Self employment tax forms If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Self employment tax forms If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Self employment tax forms   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Self employment tax forms The period is extended only for deductions of the activity and any related deductions that might be affected. Self employment tax forms    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Self employment tax forms Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Self employment tax forms Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Self employment tax forms You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Self employment tax forms However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Self employment tax forms Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Self employment tax forms If you are an individual, these deductions may be taken only if you itemize. Self employment tax forms These deductions may be taken on Schedule A (Form 1040). Self employment tax forms Category 1. Self employment tax forms   Deductions you can take for personal as well as for business activities are allowed in full. Self employment tax forms For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Self employment tax forms Deduct them on the appropriate lines of Schedule A (Form 1040). Self employment tax forms For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Self employment tax forms The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Self employment tax forms The reduction amount returns to $100 for tax years beginning after December 31, 2009. Self employment tax forms See Publication 547 for more information on casualty losses. Self employment tax forms For the limits that apply to home mortgage interest, see Publication 936. Self employment tax forms Category 2. Self employment tax forms   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Self employment tax forms Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Self employment tax forms Category 3. Self employment tax forms   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Self employment tax forms Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Self employment tax forms Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Self employment tax forms    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Self employment tax forms They are subject to the 2%-of-adjusted-gross-income limit. Self employment tax forms See Publication 529 for information on this limit. Self employment tax forms Example. Self employment tax forms Adriana is engaged in a not-for-profit activity. Self employment tax forms The income and expenses of the activity are as follows. Self employment tax forms Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Self employment tax forms The limit is reached in category (3), as follows. Self employment tax forms Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Self employment tax forms $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Self employment tax forms Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Self employment tax forms The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Self employment tax forms Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Self employment tax forms Partnerships and S corporations. Self employment tax forms   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Self employment tax forms They are reflected in the individual shareholder's or partner's distributive shares. Self employment tax forms More than one activity. Self employment tax forms   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Self employment tax forms The following are the most significant facts and circumstances in making this determination. Self employment tax forms The degree of organizational and economic interrelationship of various undertakings. Self employment tax forms The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Self employment tax forms The similarity of the undertakings. Self employment tax forms   The IRS will generally accept your characterization if it is supported by facts and circumstances. Self employment tax forms    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Self employment tax forms Figure separately whether each is a not-for-profit activity. Self employment tax forms Then figure the limit on deductions and losses separately for each activity that is not for profit. Self employment tax forms Prev  Up  Next   Home   More Online Publications