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State Tax Extension

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Open Season for Membership in the Information Reporting Advisory Committee (IRPAC)
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The State Tax Extension

State tax extension 1. State tax extension   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. State tax extension At-risk limits. State tax extension Passive activities. State tax extension Net operating loss. State tax extension When Can I Deduct an Expense?Economic performance. State tax extension Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. State tax extension  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. State tax extension See Optional safe harbor method under Business use of your home , later. State tax extension Introduction This chapter covers the general rules for deducting business expenses. State tax extension 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. State tax extension 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. State tax extension What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. State tax extension An ordinary expense is one that is common and accepted in your industry. State tax extension A necessary expense is one that is helpful and appropriate for your trade or business. State tax extension An expense does not have to be indispensable to be considered necessary. State tax extension 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. State tax extension In some cases you may not be allowed to deduct the expense at all. State tax extension Therefore, it is important to distinguish usual business expenses from expenses that include the following. State tax extension The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. State tax extension 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. State tax extension Some of your business expenses may be included in figuring cost of goods sold. State tax extension Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. State tax extension If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. State tax extension The following are types of expenses that go into figuring cost of goods sold. State tax extension The cost of products or raw materials, including freight. State tax extension Storage. State tax extension Direct labor (including contributions to pension or annuity plans) for workers who produce the products. State tax extension Factory overhead. State tax extension Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. State tax extension Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. State tax extension 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. State tax extension For more information, see the following sources. State tax extension Cost of goods sold—chapter 6 of Publication 334. State tax extension Inventories—Publication 538. State tax extension Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. State tax extension Capital Expenses You must capitalize, rather than deduct, some costs. State tax extension These costs are a part of your investment in your business and are called “capital expenses. State tax extension ” Capital expenses are considered assets in your business. State tax extension In general, you capitalize three types of costs. State tax extension Business start-up costs (See Tip below). State tax extension Business assets. State tax extension Improvements. State tax extension You can elect to deduct or amortize certain business start-up costs. State tax extension See chapters 7 and 8. State tax extension Cost recovery. State tax extension   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. State tax extension These recovery methods allow you to deduct part of your cost each year. State tax extension In this way, you are able to recover your capital expense. State tax extension See Amortization (chapter 8) and Depletion (chapter 9) in this publication. State tax extension A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. State tax extension A greater portion of these costs can be deducted if the property is qualified disaster assistance property. State tax extension See Publication 946 for details. State tax extension Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. State tax extension These costs may include expenses for advertising, travel, or wages for training employees. State tax extension If you go into business. State tax extension   When you go into business, treat all costs you had to get your business started as capital expenses. State tax extension   Usually you recover costs for a particular asset through depreciation. State tax extension Generally, you cannot recover other costs until you sell the business or otherwise go out of business. State tax extension However, you can choose to amortize certain costs for setting up your business. State tax extension See Starting a Business in chapter 8 for more information on business start-up costs. State tax extension If your attempt to go into business is unsuccessful. State tax extension   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. State tax extension The costs you had before making a decision to acquire or begin a specific business. State tax extension These costs are personal and nondeductible. State tax extension They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. State tax extension The costs you had in your attempt to acquire or begin a specific business. State tax extension These costs are capital expenses and you can deduct them as a capital loss. State tax extension   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. State tax extension   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. State tax extension You cannot take a deduction for these costs. State tax extension You will recover the costs of these assets when you dispose of them. State tax extension Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. State tax extension You must fully capitalize the cost of these assets, including freight and installation charges. State tax extension Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. State tax extension See Regulations section 1. State tax extension 263A-2 for information on these rules. State tax extension Improvements Improvements are generally major expenditures. State tax extension Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. State tax extension 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. State tax extension 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. State tax extension Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. State tax extension However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. State tax extension Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. State tax extension Restoration plan. State tax extension   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. State tax extension This applies even if some of the work would by itself be classified as repairs. State tax extension Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. State tax extension Motor vehicles. State tax extension   You usually capitalize the cost of a motor vehicle you use in your business. State tax extension You can recover its cost through annual deductions for depreciation. State tax extension   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. State tax extension See Publication 463. State tax extension   Generally, repairs you make to your business vehicle are currently deductible. State tax extension However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. State tax extension Roads and driveways. State tax extension    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. State tax extension The cost of maintaining a private road on your business property is a deductible expense. State tax extension Tools. State tax extension   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. State tax extension Machinery parts. State tax extension   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. State tax extension Heating equipment. State tax extension   The cost of changing from one heating system to another is a capital expense. State tax extension Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. State tax extension 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. State tax extension You can deduct the business part. State tax extension 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. State tax extension The remaining 30% is personal interest and generally is not deductible. State tax extension See chapter 4 for information on deducting interest and the allocation rules. State tax extension Business use of your home. State tax extension   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. State tax extension These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. State tax extension   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. State tax extension The business part of your home must be used exclusively and regularly for your trade or business. State tax extension 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. State tax extension   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. State tax extension   Your home office qualifies as your principal place of business if you meet the following requirements. State tax extension You use the office exclusively and regularly for administrative or management activities of your trade or business. State tax extension You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. State tax extension   If you have more than one business location, determine your principal place of business based on the following factors. State tax extension The relative importance of the activities performed at each location. State tax extension If the relative importance factor does not determine your principal place of business, consider the time spent at each location. State tax extension Optional safe harbor method. State tax extension   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. State tax extension This method is an alternative to the calculation, allocation, and substantiation of actual expenses. State tax extension   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. State tax extension 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). State tax extension You are not required to allocate these deductions between personal and business use, as is required under the regular method. State tax extension If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. State tax extension   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. State tax extension All of the requirements discussed earlier under Business use of your home still apply. State tax extension   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. State tax extension    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. State tax extension Business use of your car. State tax extension   If you use your car exclusively in your business, you can deduct car expenses. State tax extension If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. State tax extension Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. State tax extension   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. State tax extension 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. State tax extension Beginning in 2013, the standard mileage rate is 56. State tax extension 5 cents per mile. State tax extension   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. State tax extension   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. State tax extension 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. State tax extension Recovery of amount deducted (tax benefit rule). State tax extension   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. State tax extension If you have a recovery in a later year, include the recovered amount in income in that year. State tax extension 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. State tax extension   For more information on recoveries and the tax benefit rule, see Publication 525. State tax extension Payments in kind. State tax extension   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. State tax extension You cannot deduct the cost of your own labor. State tax extension   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. State tax extension If these costs are included in the cost of goods sold, do not deduct them again as a business expense. State tax extension Limits on losses. State tax extension   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. State tax extension There may be limits on how much of the loss you can deduct. State tax extension Not-for-profit limits. State tax extension   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. State tax extension See Not-for-Profit Activities , later. State tax extension At-risk limits. State tax extension   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. State tax extension You are at risk in any activity for the following. State tax extension The money and adjusted basis of property you contribute to the activity. State tax extension 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. State tax extension For more information, see Publication 925. State tax extension Passive activities. State tax extension   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. State tax extension In general, deductions for losses from passive activities only offset income from passive activities. State tax extension You cannot use any excess deductions to offset other income. State tax extension In addition, passive activity credits can only offset the tax on net passive income. State tax extension Any excess loss or credits are carried over to later years. State tax extension Suspended passive losses are fully deductible in the year you completely dispose of the activity. State tax extension For more information, see Publication 925. State tax extension Net operating loss. State tax extension   If your deductions are more than your income for the year, you may have a “net operating loss. State tax extension ” You can use a net operating loss to lower your taxes in other years. State tax extension See Publication 536 for more information. State tax extension   See Publication 542 for information about net operating losses of corporations. State tax extension When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. State tax extension An accounting method is a set of rules used to determine when and how income and expenses are reported. State tax extension The two basic methods are the cash method and the accrual method. State tax extension Whichever method you choose must clearly reflect income. State tax extension For more information on accounting methods, see Publication 538. State tax extension Cash method. State tax extension   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. State tax extension Accrual method. State tax extension   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. State tax extension The all-events test has been met. State tax extension The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. State tax extension Economic performance has occurred. State tax extension Economic performance. State tax extension   You generally cannot deduct or capitalize a business expense until economic performance occurs. State tax extension 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. State tax extension If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. State tax extension Example. State tax extension Your tax year is the calendar year. State tax extension In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. State tax extension You paid it by check in January 2014. State tax extension 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. State tax extension If you use the cash method of accounting, deduct the expense on your 2014 return. State tax extension Prepayment. State tax extension   You generally cannot deduct expenses in advance, even if you pay them in advance. State tax extension This rule applies to both the cash and accrual methods. State tax extension 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. State tax extension Example. State tax extension In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. State tax extension Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. State tax extension You can deduct the rent for 2014 and 2015 on your tax returns for those years. State tax extension Contested liability. State tax extension   Under the cash method, you can deduct a contested liability only in the year you pay the liability. State tax extension Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. State tax extension S. State tax extension 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. State tax extension However, to take the deduction in the year of payment or transfer, you must meet certain conditions. State tax extension See Regulations section 1. State tax extension 461-2. State tax extension Related person. State tax extension   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. State tax extension 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. State tax extension Your deduction is allowed when the amount is includible in income by the related cash method payee. State tax extension See Related Persons in Publication 538. State tax extension 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. State tax extension Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. State tax extension The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. State tax extension It does not apply to corporations other than S corporations. State tax extension In determining whether you are carrying on an activity for profit, several factors are taken into account. State tax extension No one factor alone is decisive. State tax extension 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. State tax extension Presumption of profit. State tax extension   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. State tax extension 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. State tax extension The activity must be substantially the same for each year within this period. State tax extension You have a profit when the gross income from an activity exceeds the deductions. State tax extension   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. State tax extension   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. State tax extension This means the limits discussed here will not apply. State tax extension You can take all your business deductions from the activity, even for the years that you have a loss. State tax extension You can rely on this presumption unless the IRS later shows it to be invalid. State tax extension Using the presumption later. State tax extension   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. State tax extension   You can elect to do this by filing Form 5213. State tax extension 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. State tax extension   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. State tax extension Accordingly, it will not restrict your deductions. State tax extension Rather, you will gain time to earn a profit in the required number of years. State tax extension If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. State tax extension 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. State tax extension   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. State tax extension The period is extended only for deductions of the activity and any related deductions that might be affected. State tax extension    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. State tax extension 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. State tax extension 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. State tax extension You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. State tax extension 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. State tax extension 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. State tax extension If you are an individual, these deductions may be taken only if you itemize. State tax extension These deductions may be taken on Schedule A (Form 1040). State tax extension Category 1. State tax extension   Deductions you can take for personal as well as for business activities are allowed in full. State tax extension For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. State tax extension Deduct them on the appropriate lines of Schedule A (Form 1040). State tax extension 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). State tax extension 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. State tax extension The reduction amount returns to $100 for tax years beginning after December 31, 2009. State tax extension See Publication 547 for more information on casualty losses. State tax extension For the limits that apply to home mortgage interest, see Publication 936. State tax extension Category 2. State tax extension   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. State tax extension Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. State tax extension Category 3. State tax extension   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. State tax extension Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. State tax extension Where more than one asset is involved, allocate depreciation and these other deductions proportionally. State tax extension    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). State tax extension They are subject to the 2%-of-adjusted-gross-income limit. State tax extension See Publication 529 for information on this limit. State tax extension Example. State tax extension Adriana is engaged in a not-for-profit activity. State tax extension The income and expenses of the activity are as follows. State tax extension 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. State tax extension The limit is reached in category (3), as follows. State tax extension 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. State tax extension $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. State tax extension Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. State tax extension The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). State tax extension 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. State tax extension Partnerships and S corporations. State tax extension   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. State tax extension They are reflected in the individual shareholder's or partner's distributive shares. State tax extension More than one activity. State tax extension   If you have several undertakings, each may be a separate activity or several undertakings may be combined. State tax extension The following are the most significant facts and circumstances in making this determination. State tax extension The degree of organizational and economic interrelationship of various undertakings. State tax extension The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. State tax extension The similarity of the undertakings. State tax extension   The IRS will generally accept your characterization if it is supported by facts and circumstances. State tax extension    If you are carrying on two or more different activities, keep the deductions and income from each one separate. State tax extension Figure separately whether each is a not-for-profit activity. State tax extension Then figure the limit on deductions and losses separately for each activity that is not for profit. State tax extension Prev  Up  Next   Home   More Online Publications