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Turbotax military members Publication 721 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. Turbotax military members Tax questions. Turbotax military members Useful Items - You may want to see: Reminders Future developments. Turbotax military members  For the latest information about developments related to Publication 721, such as legislation enacted after it was published, go to www. Turbotax military members IRS. Turbotax military members gov/pub721. Turbotax military members Phased retirement. Turbotax military members   The new phased retirement program was signed into law by the Moving Ahead for Progress in the 21st Century Act and will be available for retirement eligible individuals once the regulations for this program are effective. Turbotax military members This new program will allow eligible employees to begin receiving annuity payments while working part-time. Turbotax military members For more information, go to the Office of Personnel Management (OPM) website at www. Turbotax military members opm. Turbotax military members gov. Turbotax military members Roth Thrift Savings Plan (TSP) balance. Turbotax military members  You may be able to contribute to a designated Roth account through the TSP known as the Roth TSP. Turbotax military members Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. Turbotax military members Qualified distributions from a Roth TSP are not included in your income. Turbotax military members See Thrift Savings Plan in Part II for more information. Turbotax military members Rollovers. Turbotax military members  You can roll over certain amounts from the CSRS, FERS, or TSP, to a tax-sheltered annuity plan (403(b) plan) or a state or local government section 457 deferred compensation plan. Turbotax military members See Rollover Rules in Part II. Turbotax military members Rollovers by surviving spouse. Turbotax military members  You may be able to roll over a distribution you receive as the surviving spouse of a deceased employee or retiree into a qualified retirement plan or an IRA. Turbotax military members See Rollover Rules in Part II. Turbotax military members Thrift Savings Plan (TSP) beneficiary participant accounts. Turbotax military members  If you are the spouse beneficiary of a decedent's TSP account, you have the option of leaving the death benefit payment in a TSP account in your own name (a beneficiary participant account). Turbotax military members The amounts in the beneficiary participant account are neither taxable or reportable until you choose to make a withdrawal, or otherwise receive a distribution from the account. Turbotax military members Benefits for public safety officer's survivors. Turbotax military members  A survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty generally will be excluded from the recipient's income. Turbotax military members For more information, see Dependents of public safety officers in Part IV. Turbotax military members Uniformed services Thrift Savings Plan (TSP) accounts. Turbotax military members  If you have a uniformed services TSP account, it may include contributions from combat zone pay. Turbotax military members This pay is tax-exempt and contributions attributable to that pay are tax-exempt when they are distributed from the uniformed services TSP account. Turbotax military members However, any earnings on those contributions are subject to tax when they are distributed. Turbotax military members The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. Turbotax military members If you have both a civilian and a uniformed services TSP account, you should apply the rules discussed in this publication separately to each account. Turbotax military members You can get more information from the TSP website, www. Turbotax military members tsp. Turbotax military members gov, or the TSP Service Office. Turbotax military members Photographs of missing children. Turbotax military members  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Turbotax military members Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Turbotax military members You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Turbotax military members Introduction This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. Turbotax military members These benefits are paid primarily under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Turbotax military members Tax rules for annuity benefits. Turbotax military members   Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS. Turbotax military members The rest of your benefits are taxable. Turbotax military members If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts. Turbotax military members If your annuity starting date is before November 19, 1996, you generally could have chosen to use the Simplified Method or the General Rule. Turbotax military members See Part II, Rules for Retirees . Turbotax military members Thrift Savings Plan. Turbotax military members   The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. Turbotax military members This plan is similar to private sector 401(k) plans. Turbotax military members You can defer tax on part of your pay by having it contributed to your traditional balance in the plan. Turbotax military members The contributions and earnings on them are not taxed until they are distributed to you. Turbotax military members Also the TSP offers a Roth TSP option. Turbotax military members Contributions to this type of balance are after tax and qualified distributions from the account are tax free. Turbotax military members See Thrift Savings Plan in Part II. Turbotax military members Comments and suggestions. Turbotax military members   We welcome your comments about this publication and your suggestions for future editions. Turbotax military members   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Turbotax military members NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Turbotax military members Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Turbotax military members   You can send your comments from www. Turbotax military members irs. Turbotax military members gov/formspubs/. Turbotax military members Click on “More Information” and then on “Comment on Tax Forms and Publications”. Turbotax military members   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Turbotax military members Ordering forms and publications. Turbotax military members   Visit www. Turbotax military members irs. Turbotax military members gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Turbotax military members Internal Revenue Service 1201 N. Turbotax military members Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Turbotax military members   If you have a tax question, check the information available on IRS. Turbotax military members gov or call 1-800-829-1040. Turbotax military members We cannot answer tax questions sent to either of the above addresses. Turbotax military members Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 939 General Rule for Pensions and Annuities Form (and Instructions) CSA 1099R Statement of Annuity Paid CSF 1099R Statement of Survivor Annuity Paid W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Turbotax military members 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. Turbotax military members Prev  Up  Next   Home   More Online Publications
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Turbotax military members 8. Turbotax military members   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. Turbotax military members Cash method. Turbotax military members Car and Truck ExpensesOffice in the home. Turbotax military members Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. Turbotax military members InsuranceHow to figure the deduction. Turbotax military members Interest Legal and Professional FeesTax preparation fees. Turbotax military members Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. Turbotax military members Taxi, commuter bus, and limousine. Turbotax military members Baggage and shipping. Turbotax military members Car or truck. Turbotax military members Meals and lodging. Turbotax military members Cleaning. Turbotax military members Telephone. Turbotax military members Tips. Turbotax military members More information. Turbotax military members Business Use of Your HomeExceptions to exclusive use. Turbotax military members Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. Turbotax military members These costs are known as business expenses. Turbotax military members These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. Turbotax military members To be deductible, a business expense must be both ordinary and necessary. Turbotax military members An ordinary expense is one that is common and accepted in your field of business. Turbotax military members A necessary expense is one that is helpful and appropriate for your business. Turbotax military members An expense does not have to be indispensable to be considered necessary. Turbotax military members For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. Turbotax military members If you have an expense that is partly for business and partly personal, separate the personal part from the business part. Turbotax military members The personal part is not deductible. Turbotax military members Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. Turbotax military members Bad Debts If someone owes you money you cannot collect, you have a bad debt. Turbotax military members There are two kinds of bad debts, business bad debts and nonbusiness bad debts. Turbotax military members A business bad debt is generally one that comes from operating your trade or business. Turbotax military members You may be able to deduct business bad debts as an expense on your business tax return. Turbotax military members Business bad debt. Turbotax military members   A business bad debt is a loss from the worthlessness of a debt that was either of the following. Turbotax military members Created or acquired in your business. Turbotax military members Closely related to your business when it became partly or totally worthless. Turbotax military members A debt is closely related to your business if your primary motive for incurring the debt is a business reason. Turbotax military members   Business bad debts are mainly the result of credit sales to customers. Turbotax military members They can also be the result of loans to suppliers, clients, employees, or distributors. Turbotax military members Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. Turbotax military members If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. Turbotax military members    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. Turbotax military members Accrual method. Turbotax military members   If you use an accrual method of accounting, you normally report income as you earn it. Turbotax military members You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. Turbotax military members Cash method. Turbotax military members   If you use the cash method of accounting, you normally report income when you receive payment. Turbotax military members You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. Turbotax military members More information. Turbotax military members   For more information about business bad debts, see chapter 10 in Publication 535. Turbotax military members Nonbusiness bad debts. Turbotax military members   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). Turbotax military members For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. Turbotax military members Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. Turbotax military members You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. Turbotax military members You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. Turbotax military members See Form 8936 and Form 8910 for more information. Turbotax military members Local transportation expenses. Turbotax military members   Local transportation expenses include the ordinary and necessary costs of all the following. Turbotax military members Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Turbotax military members Tax home is defined later. Turbotax military members Visiting clients or customers. Turbotax military members Going to a business meeting away from your regular workplace. Turbotax military members Getting from your home to a temporary workplace when you have one or more regular places of work. Turbotax military members These temporary workplaces can be either within the area of your tax home or outside that area. Turbotax military members Local business transportation does not include expenses you have while traveling away from home overnight. Turbotax military members Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. Turbotax military members However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Turbotax military members   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Turbotax military members It includes the entire city or general area in which your business or work is located. Turbotax military members Example. Turbotax military members You operate a printing business out of rented office space. Turbotax military members You use your van to deliver completed jobs to your customers. Turbotax military members You can deduct the cost of round-trip transportation between your customers and your print shop. Turbotax military members    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. Turbotax military members These costs are personal commuting expenses. Turbotax military members Office in the home. Turbotax military members   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. Turbotax military members For more information, see Business Use of Your Home, later. Turbotax military members Example. Turbotax military members You are a graphics designer. Turbotax military members You operate your business out of your home. Turbotax military members Your home qualifies as your principal place of business. Turbotax military members You occasionally have to drive to your clients to deliver your completed work. Turbotax military members You can deduct the cost of the round-trip transportation between your home and your clients. Turbotax military members Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. Turbotax military members Standard mileage rate. Turbotax military members Actual expenses. Turbotax military members Standard mileage rate. Turbotax military members   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Turbotax military members For 2013, the standard mileage rate is 56. Turbotax military members 5 cents per mile. Turbotax military members    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. Turbotax military members Choosing the standard mileage rate. Turbotax military members   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. Turbotax military members In later years, you can choose to use either the standard mileage rate or actual expenses. Turbotax military members   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Turbotax military members Standard mileage rate not allowed. Turbotax military members   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Turbotax military members Parking fees and tolls. Turbotax military members   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Turbotax military members (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Turbotax military members ) Actual expenses. Turbotax military members   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. Turbotax military members    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. Turbotax military members   Actual car expenses include the costs of the following items. Turbotax military members Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Turbotax military members You can divide your expenses based on the miles driven for each purpose. Turbotax military members Example. Turbotax military members You are the sole proprietor of a flower shop. Turbotax military members You drove your van 20,000 miles during the year. Turbotax military members 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). Turbotax military members You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Turbotax military members More information. Turbotax military members   For more information about the rules for claiming car and truck expenses, see Publication 463. Turbotax military members Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. Turbotax military members The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Turbotax military members For details, see chapter 11 in Publication 535. Turbotax military members That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Turbotax military members Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Turbotax military members You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. Turbotax military members This method of deducting the cost of business property is called depreciation. Turbotax military members The discussion here is brief. Turbotax military members You will find more information about depreciation in Publication 946. Turbotax military members What property can be depreciated?   You can depreciate property if it meets all the following requirements. Turbotax military members It must be property you own. Turbotax military members It must be used in business or held to produce income. Turbotax military members You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. Turbotax military members It must have a useful life that extends substantially beyond the year it is placed in service. Turbotax military members It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Turbotax military members You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. Turbotax military members It must not be excepted property. Turbotax military members This includes property placed in service and disposed of in the same year. Turbotax military members Repairs. Turbotax military members    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. Turbotax military members You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. Turbotax military members Depreciation method. Turbotax military members   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Turbotax military members MACRS is discussed in detail in Publication 946. Turbotax military members Section 179 deduction. Turbotax military members   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Turbotax military members This deduction is known as the “section 179 deduction. Turbotax military members ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). Turbotax military members See IRC 179(e). Turbotax military members   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Turbotax military members The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). Turbotax military members Special rules apply to trucks and vans. Turbotax military members For more information, see Publication 946. Turbotax military members It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. Turbotax military members    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. Turbotax military members For more information, see the Instructions for Form 4562 or Publication 946. Turbotax military members Listed property. Turbotax military members   You must follow special rules and recordkeeping requirements when depreciating listed property. Turbotax military members Listed property is any of the following. Turbotax military members Most passenger automobiles. Turbotax military members Most other property used for transportation. Turbotax military members Any property of a type generally used for entertainment, recreation, or amusement. Turbotax military members Certain computers and related peripheral equipment. Turbotax military members   For more information about listed property, see Publication 946. Turbotax military members Form 4562. Turbotax military members   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. Turbotax military members Depreciation on property placed in service during the current tax year. Turbotax military members A section 179 deduction. Turbotax military members Depreciation on any listed property (regardless of when it was placed in service). Turbotax military members    If you have to use Form 4562, you must file Schedule C. Turbotax military members You cannot use Schedule C-EZ. Turbotax military members   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. Turbotax military members The pay may be in cash, property, or services. Turbotax military members To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. Turbotax military members In addition, the pay must meet both the following tests. Turbotax military members The pay must be reasonable. Turbotax military members The pay must be for services performed. Turbotax military members Chapter 2 in Publication 535 explains and defines these requirements. Turbotax military members You cannot deduct your own salary or any personal withdrawals you make from your business. Turbotax military members As a sole proprietor, you are not an employee of the business. Turbotax military members If you had employees during the year, you must use Schedule C. Turbotax military members You cannot use Schedule C-EZ. Turbotax military members Kinds of pay. Turbotax military members   Some of the ways you may provide pay to your employees are listed below. Turbotax military members For an explanation of each of these items, see chapter 2 in Publication 535. Turbotax military members Awards. Turbotax military members Bonuses. Turbotax military members Education expenses. Turbotax military members Fringe benefits (discussed later). Turbotax military members Loans or advances you do not expect the employee to repay if they are for personal services actually performed. Turbotax military members Property you transfer to an employee as payment for services. Turbotax military members Reimbursements for employee business expenses. Turbotax military members Sick pay. Turbotax military members Vacation pay. Turbotax military members Fringe benefits. Turbotax military members   A fringe benefit is a form of pay for the performance of services. Turbotax military members The following are examples of fringe benefits. Turbotax military members Benefits under qualified employee benefit programs. Turbotax military members Meals and lodging. Turbotax military members The use of a car. Turbotax military members Flights on airplanes. Turbotax military members Discounts on property or services. Turbotax military members Memberships in country clubs or other social clubs. Turbotax military members Tickets to entertainment or sporting events. Turbotax military members   Employee benefit programs include the following. Turbotax military members Accident and health plans. Turbotax military members Adoption assistance. Turbotax military members Cafeteria plans. Turbotax military members Dependent care assistance. Turbotax military members Educational assistance. Turbotax military members Group-term life insurance coverage. Turbotax military members Welfare benefit funds. Turbotax military members   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. Turbotax military members For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. Turbotax military members If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. Turbotax military members    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. Turbotax military members For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Turbotax military members Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. Turbotax military members Fire, theft, flood, or similar insurance. Turbotax military members Credit insurance that covers losses from business bad debts. Turbotax military members Group hospitalization and medical insurance for employees, including long-term care insurance. Turbotax military members Liability insurance. Turbotax military members Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Turbotax military members Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Turbotax military members Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Turbotax military members Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Turbotax military members Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Turbotax military members If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Turbotax military members If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Turbotax military members Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. Turbotax military members Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Turbotax military members Nondeductible premiums. Turbotax military members   You cannot deduct premiums on the following kinds of insurance. Turbotax military members Self-insurance reserve funds. Turbotax military members You cannot deduct amounts credited to a reserve set up for self-insurance. Turbotax military members This applies even if you cannot get business insurance coverage for certain business risks. Turbotax military members However, your actual losses may be deductible. Turbotax military members For more information, see Publication 547, Casualties, Disasters, and Thefts. Turbotax military members Loss of earnings. Turbotax military members You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. Turbotax military members However, see item (8) in the previous list. Turbotax military members Certain life insurance and annuities. Turbotax military members For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Turbotax military members You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Turbotax military members A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Turbotax military members For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Turbotax military members The disallowance applies without regard to whom the policy covers. Turbotax military members Insurance to secure a loan. Turbotax military members If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Turbotax military members Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Turbotax military members In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Turbotax military members Self-employed health insurance deduction. Turbotax military members   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. Turbotax military members How to figure the deduction. Turbotax military members   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Turbotax military members However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. Turbotax military members You have more than one source of income subject to self-employment tax. Turbotax military members You file Form 2555 or Form 2555-EZ (relating to foreign earned income). Turbotax military members You are using amounts paid for qualified long-term care insurance to figure the deduction. Turbotax military members Prepayment. Turbotax military members   You cannot deduct expenses in advance, even if you pay them in advance. Turbotax military members This rule applies to any 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. Turbotax military members Example. Turbotax military members In 2013, you signed a 3-year insurance contract. Turbotax military members Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Turbotax military members You can deduct in 2014 and 2015 the premium allocable to those years. Turbotax military members More information. Turbotax military members   For more information about deducting insurance, see chapter 6 in Publication 535. Turbotax military members Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. Turbotax military members Interest relates to your business if you use the proceeds of the loan for a business expense. Turbotax military members It does not matter what type of property secures the loan. Turbotax military members You can deduct interest on a debt only if you meet all of the following requirements. Turbotax military members You are legally liable for that debt. Turbotax military members Both you and the lender intend that the debt be repaid. Turbotax military members You and the lender have a true debtor-creditor relationship. Turbotax military members You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. Turbotax military members If a loan is part business and part personal, you must divide the interest between the personal part and the business part. Turbotax military members Example. Turbotax military members In 2013, you paid $600 interest on a car loan. Turbotax military members During 2013, you used the car 60% for business and 40% for personal purposes. Turbotax military members You are claiming actual expenses on the car. Turbotax military members You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. Turbotax military members The remaining interest of $240 is a nondeductible personal expense. Turbotax military members More information. Turbotax military members   For more information about deducting interest, see chapter 4 in Publication 535. Turbotax military members That chapter explains the following items. Turbotax military members Interest you can deduct. Turbotax military members Interest you cannot deduct. Turbotax military members How to allocate interest between personal and business use. Turbotax military members When to deduct interest. Turbotax military members The rules for a below-market interest rate loan. Turbotax military members (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Turbotax military members ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. Turbotax military members However, you usually cannot deduct legal fees you pay to acquire business assets. Turbotax military members Add them to the basis of the property. Turbotax military members If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. Turbotax military members The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. Turbotax military members For more information, see Publication 529, Miscellaneous Deductions. Turbotax military members Tax preparation fees. Turbotax military members   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. Turbotax military members You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Turbotax military members   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. Turbotax military members Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. Turbotax military members SEP (Simplified Employee Pension) plans. Turbotax military members SIMPLE (Savings Incentive Match Plan for Employees) plans. Turbotax military members Qualified plans (including Keogh or H. Turbotax military members R. Turbotax military members 10 plans). Turbotax military members SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. Turbotax military members You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. Turbotax military members If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. Turbotax military members You can also deduct trustees' fees if contributions to the plan do not cover them. Turbotax military members Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Turbotax military members You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. Turbotax military members Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. Turbotax military members These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. Turbotax military members For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Turbotax military members Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. Turbotax military members Rent Expense Rent is any amount you pay for the use of property you do not own. Turbotax military members In general, you can deduct rent as a business expense only if the rent is for property you use in your business. Turbotax military members If you have or will receive equity in or title to the property, you cannot deduct the rent. Turbotax military members Unreasonable rent. Turbotax military members   You cannot take a rental deduction for unreasonable rents. Turbotax military members Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Turbotax military members Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Turbotax military members Rent is not unreasonable just because it is figured as a percentage of gross receipts. Turbotax military members   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Turbotax military members For a list of the other related persons, see section 267 of the Internal Revenue Code. Turbotax military members Rent on your home. Turbotax military members   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Turbotax military members You must meet the requirements for business use of your home. Turbotax military members For more information, see Business Use of Your Home , later. Turbotax military members Rent paid in advance. Turbotax military members   Generally, rent paid in your business is deductible in the year paid or accrued. Turbotax military members If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Turbotax military members You can deduct the rest of your payment only over the period to which it applies. Turbotax military members More information. Turbotax military members   For more information about rent, see chapter 3 in Publication 535. Turbotax military members Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. Turbotax military members Income taxes. Turbotax military members   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. Turbotax military members You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. Turbotax military members Do not deduct federal income tax. Turbotax military members Employment taxes. Turbotax military members   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. Turbotax military members Employment taxes are discussed briefly in chapter 1. Turbotax military members You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Turbotax military members Deduct these payments as taxes. Turbotax military members Self-employment tax. Turbotax military members   You can deduct one-half of your self-employment tax on line 27 of Form 1040. Turbotax military members Self-employment tax is discussed in chapters 1 and 10. Turbotax military members Personal property tax. Turbotax military members   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. Turbotax military members   You can also deduct registration fees for the right to use property within a state or local area. Turbotax military members Example. Turbotax military members May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. Turbotax military members They had to pay $25 for their annual state license tags and $20 for their city registration sticker. Turbotax military members They also paid $235 in city personal property tax on the car, for a total of $280. Turbotax military members They are claiming their actual car expenses. Turbotax military members Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. Turbotax military members Real estate taxes. Turbotax military members   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. Turbotax military members Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Turbotax military members The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Turbotax military members   For more information about real estate taxes, see chapter 5 in Publication 535. Turbotax military members That chapter explains special rules for deducting the following items. Turbotax military members Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. Turbotax military members Real estate taxes when you buy or sell property during the year. Turbotax military members Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. Turbotax military members Sales tax. Turbotax military members   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Turbotax military members If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Turbotax military members If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Turbotax military members If the property is depreciable, add the sales tax to the basis for depreciation. Turbotax military members For information on the basis of property, see Publication 551, Basis of Assets. Turbotax military members    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Turbotax military members Do not include these taxes in gross receipts or sales. Turbotax military members Excise taxes. Turbotax military members   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. Turbotax military members Excise taxes are discussed briefly in chapter 1. Turbotax military members Fuel taxes. Turbotax military members   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. Turbotax military members Do not deduct these taxes as a separate item. Turbotax military members   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Turbotax military members For more information, see Publication 510, Excise Taxes. Turbotax military members Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. Turbotax military members Table 8-1. Turbotax military members When Are Entertainment Expenses Deductible? (Note. Turbotax military members The following is a summary of the rules for deducting entertainment expenses. Turbotax military members For more details about these rules, see Publication 463. Turbotax military members ) 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. Turbotax military members Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Turbotax military members An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Turbotax military members A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Turbotax military members 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. Turbotax military members   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. Turbotax military members Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Turbotax military members You cannot deduct expenses that are lavish or extravagant under the circumstances. Turbotax military members You generally can deduct only 50% of your unreimbursed entertainment expenses. Turbotax military members Travel expenses. Turbotax military members   These are the ordinary and necessary expenses of traveling away from home for your business. Turbotax military members You are traveling away from home if both the following conditions are met. Turbotax military members Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. Turbotax military members You need to get sleep or rest to meet the demands of your work while away from home. Turbotax military members Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Turbotax military members It includes the entire city or general area in which your business is located. Turbotax military members See Publication 463 for more information. Turbotax military members   The following is a brief discussion of the expenses you can deduct. Turbotax military members Transportation. Turbotax military members   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. Turbotax military members Taxi, commuter bus, and limousine. Turbotax military members   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. Turbotax military members Baggage and shipping. Turbotax military members   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. Turbotax military members Car or truck. Turbotax military members   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. Turbotax military members You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. Turbotax military members If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Turbotax military members Meals and lodging. Turbotax military members   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Turbotax military members In most cases, you can deduct only 50% of your meal expenses. Turbotax military members Cleaning. Turbotax military members   You can deduct the costs of dry cleaning and laundry while on your business trip. Turbotax military members Telephone. Turbotax military members   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. Turbotax military members Tips. Turbotax military members   You can deduct the tips you pay for any expense in this list. Turbotax military members More information. Turbotax military members   For more information about travel expenses, see Publication 463. Turbotax military members Entertainment expenses. Turbotax military members   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. Turbotax military members In most cases, you can deduct only 50% of these expenses. Turbotax military members   The following are examples of entertainment expenses. Turbotax military members Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. Turbotax military members Providing meals, a hotel suite, or a car to business customers or their families. Turbotax military members To be deductible, the expenses must meet the rules listed in Table 8-1. Turbotax military members For details about these rules, see Publication 463. Turbotax military members Reimbursing your employees for expenses. Turbotax military members   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. Turbotax military members The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Turbotax military members For details, see chapter 11 in Publication 535. Turbotax military members That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Turbotax military members Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. Turbotax military members Even then, your deduction may be limited. Turbotax military members To qualify to claim expenses for business use of your home, you must meet the following tests. Turbotax military members Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. Turbotax military members Exclusive use. Turbotax military members   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Turbotax military members The area used for business can be a room or other separately identifiable space. Turbotax military members The space does not need to be marked off by a permanent partition. Turbotax military members   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Turbotax military members Example. Turbotax military members You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Turbotax military members Your family also uses the den for recreation. Turbotax military members The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. Turbotax military members Exceptions to exclusive use. Turbotax military members   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. Turbotax military members For the storage of inventory or product samples. Turbotax military members As a daycare facility. Turbotax military members For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Turbotax military members Regular use. Turbotax military members   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. Turbotax military members You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. Turbotax military members Principal place of business. Turbotax military members   You can have more than one business location, including your home, for a single trade or business. Turbotax military members To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. Turbotax military members To determine your principal place of business, you must consider all the facts and circumstances. Turbotax military members   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Turbotax military members You use it exclusively and regularly for administrative or management activities of your business. Turbotax military members You have no other fixed location where you conduct substantial administrative or management activities of your business. Turbotax military members   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Turbotax military members The relative importance of the activities performed at each location. Turbotax military members If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. Turbotax military members   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Turbotax military members However, for other ways to qualify to deduct home office expenses, see Publication 587. Turbotax military members Deduction limit. Turbotax military members   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Turbotax military members If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Turbotax military members   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. Turbotax military members The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Turbotax military members The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Turbotax military members Do not include in (2) above your deduction for one-half of your self-employment tax. Turbotax military members   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Turbotax military members New simplified method. Turbotax military members    The IRS now provides a simplified method to determine your expenses for business use of your home. Turbotax military members The simplified method is an alternative to calculating and substantiating actual expenses. Turbotax military members In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. Turbotax military members The area you use to figure your deduction is limited to 300 square feet. Turbotax military members For more information, see the Instructions for Schedule C. Turbotax military members More information. Turbotax military members   For more information on deducting expenses for the business use of your home, see Publication 587. Turbotax military members Other Expenses You Can Deduct You may also be able to deduct the following expenses. Turbotax military members See Publication 535 to find out whether you can deduct them. Turbotax military members Advertising. Turbotax military members Bank fees. Turbotax military members Donations to business organizations. Turbotax military members Education expenses. Turbotax military members Energy efficient commercial buildings deduction expenses. Turbotax military members Impairment-related expenses. Turbotax military members Interview expense allowances. Turbotax military members Licenses and regulatory fees. Turbotax military members Moving machinery. Turbotax military members Outplacement services. Turbotax military members Penalties and fines you pay for late performance or nonperformance of a contract. Turbotax military members Repairs that keep your property in a normal efficient operating condition. Turbotax military members Repayments of income. Turbotax military members Subscriptions to trade or professional publications. Turbotax military members Supplies and materials. Turbotax military members Utilities. Turbotax military members Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. Turbotax military members For more information, see Publication 535. Turbotax military members Bribes and kickbacks. Turbotax military members Charitable contributions. Turbotax military members Demolition expenses or losses. Turbotax military members Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. Turbotax military members Lobbying expenses. Turbotax military members Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. Turbotax military members Personal, living, and family expenses. Turbotax military members Political contributions. Turbotax military members Repairs that add to the value of your property or significantly increase its life. Turbotax military members Prev  Up  Next   Home   More Online Publications