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1040ez on line Publication 4492-A - Main Contents Table of Contents DefinitionsKansas Disaster Area Storms and Tornadoes Casualty and Theft Losses Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Recovery Assistance Distributions Repayment of Qualified Recovery Assistance Distributions How To Report Qualified Recovery Assistance Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Employee Retention Credit Demolition and Clean-up Costs Request for Copy or Transcript of Tax Return How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 1040ez on line Definitions The following definitions are used throughout this publication. 1040ez on line Kansas Disaster Area The Kansas disaster area covers the Kansas counties of Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford. 1040ez on line Storms and Tornadoes The term “storms and tornadoes” as used in this publication, refers to the storms and tornadoes that began on May 4, 2007, and affected the Kansas disaster area (defined above). 1040ez on line Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that occurred in the Kansas disaster area. 1040ez on line Limits on personal casualty or theft losses in the Kansas disaster area. 1040ez on line   Losses of personal use property that arose in the Kansas disaster area after May 3, 2007, are not subject to the $100 or 10% of adjusted gross income limits. 1040ez on line Qualifying losses include losses from casualties and thefts that arose in the disaster area and that were attributable to the storms and tornadoes. 1040ez on line When to deduct the loss. 1040ez on line   Casualty and theft losses are generally deductible only in the year the casualty occurred or the theft was discovered. 1040ez on line However, the Kansas disaster area is a Presidentially declared disaster. 1040ez on line Therefore, you could have elected to deduct losses from these storms and tornadoes on your tax return for the previous year. 1040ez on line The deadline for making this election has expired. 1040ez on line   The following special instructions explain how to complete your forms if you deduct the loss in 2007 or elected to deduct the loss in 2006. 1040ez on line Special instructions for individuals who file Form 4684 to claim a Kansas disaster area casualty or theft loss for 2007 or are amending their 2006 return. 1040ez on line   Individuals filing or amending their 2007 tax return or amending their 2006 tax return for casualty or theft losses that were attributable to the storms and tornadoes should enter “Kansas Disaster Area” at the top of Form 1040 or 1040X. 1040ez on line They must also complete and attach the 2006 version of Form 4684 for either year and enter “Kansas Disaster Area” on the top and on the dotted line next to line 11 and enter -0- on line 11. 1040ez on line Individuals filing or amending their 2007 tax return should cross out “2006” and enter “2007” at the top of Form 4684. 1040ez on line They must also enter the amount from line 21 of that form on line 20 of Schedule A (Form 1040). 1040ez on line Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. 1040ez on line Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). 1040ez on line However, for property that was involuntarily converted after May 3, 2007, as a result of the storms and tornadoes, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Kansas disaster area. 1040ez on line For more information, see the Instructions for Form 4684. 1040ez on line Net Operating Losses Qualified recovery assistance loss. 1040ez on line   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. 1040ez on line However, the portion of an NOL that is a qualified recovery assistance loss can be carried back to the 5 tax years before the NOL year. 1040ez on line In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. 1040ez on line   A qualified recovery assistance loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified recovery assistance casualty loss (as defined below), Moving expenses paid or incurred after May 3, 2007, and before January 1, 2010, for the employment of an individual whose main home was in the Kansas disaster area before May 4, 2007, who was unable to remain in that home because of the storms and tornadoes, and whose main job location (after the move) is in the Kansas disaster area, Temporary housing expenses paid or incurred after May 3, 2007, and before January 1, 2010, to house employees of the taxpayer whose main job location is in the Kansas disaster area, Depreciation or amortization allowable for any qualified recovery assistance property (even if you elected not to claim the special recovery assistance depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after May 3, 2007, and before January 1, 2010, for any damage from the storms and tornadoes to property located in the Kansas disaster area. 1040ez on line Qualified recovery assistance casualty loss. 1040ez on line   A qualified recovery assistance casualty loss is any deductible section 1231 loss of property located in the Kansas disaster area if the loss was caused by the storms and tornadoes. 1040ez on line For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by the storms and tornadoes of property located in the Kansas disaster area. 1040ez on line Any such loss taken into account in figuring your qualified recovery assistance loss is not eligible for the election to be treated as having occurred in the previous tax year. 1040ez on line Amended return. 1040ez on line   If you have already filed your 2007 tax return and then carried your NOL back 2 years, you may file an amended return to carry back for 5 years your NOL attributable to a qualified recovery assistance loss. 1040ez on line More information. 1040ez on line    For more information on NOLs, see Publication 536. 1040ez on line IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for individuals who suffered economic losses as a result of the storms and tornadoes. 1040ez on line Definitions Qualified recovery assistance distribution. 1040ez on line   Except as provided below, a qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan if all of the following apply. 1040ez on line The distribution was made after May 3, 2007, and before January 1, 2009. 1040ez on line Your main home was located in the Kansas disaster area on May 4, 2007. 1040ez on line You sustained an economic loss because of the storms and tornadoes. 1040ez on line Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040ez on line   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified recovery assistance distribution, regardless of whether the distribution was made on account of the storms and tornadoes. 1040ez on line Qualified recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss. 1040ez on line   The total of your qualified recovery assistance distributions from all plans is limited to $100,000. 1040ez on line If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. 1040ez on line   A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified recovery assistance distribution. 1040ez on line Eligible retirement plan. 1040ez on line   An eligible retirement plan can be any of the following. 1040ez on line A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). 1040ez on line A qualified annuity plan. 1040ez on line A tax-sheltered annuity contract. 1040ez on line A governmental section 457 deferred compensation plan. 1040ez on line A traditional, SEP, SIMPLE, or Roth IRA. 1040ez on line Main home. 1040ez on line   Generally, your main home is the home where you live most of the time. 1040ez on line A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. 1040ez on line Taxation of Qualified Recovery Assistance Distributions Qualified recovery assistance distributions are included in income in equal amounts over three years. 1040ez on line However, if you elect, you can include the entire distribution in your income in the year it was received. 1040ez on line Qualified recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). 1040ez on line However, any distributions you receive in excess of the $100,000 qualified recovery assistance distribution limit may be subject to the additional tax on early distributions. 1040ez on line For more information, see How To Report Qualified Recovery Assistance Distributions on page 4. 1040ez on line Repayment of Qualified Recovery Assistance Distributions If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. 1040ez on line Also, you can repay a qualified recovery assistance distribution made on account of a hardship from a retirement plan. 1040ez on line However, see Exceptions below for qualified recovery assistance distributions you cannot repay. 1040ez on line You have three years from the day after the date you received the distribution to make a repayment. 1040ez on line Amounts that are repaid are treated as a qualified rollover and are not included in income. 1040ez on line Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. 1040ez on line See Form 8915 for more information on how to report repayments. 1040ez on line Exceptions. 1040ez on line   You cannot repay the following types of distributions. 1040ez on line Qualified recovery assistance distributions received as a beneficiary (other than a surviving spouse). 1040ez on line Required minimum distributions. 1040ez on line Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. 1040ez on line How To Report Qualified Recovery Assistance Distributions You will need the following information to correctly report any 2007 or 2008 qualified recovery assistance distributions. 1040ez on line 2007 Qualified Recovery Assistance Distributions If you received a distribution after May 3, 2007, from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. 1040ez on line See Qualified recovery assistance distribution on page 3. 1040ez on line If you have not filed your 2007 income tax return, see Form 8915 and Form 8606 on this page to see how to complete these forms for any qualified recovery assistance distributions. 1040ez on line Be sure to attach Form 8915 and Form 8606 (if required) to your 2007 income tax return. 1040ez on line If you have filed your 2007 income tax return, you will need to amend your return to designate any distributions as qualified recovery assistance distributions. 1040ez on line You can amend your 2007 income tax return by using Form 1040X. 1040ez on line You will need to complete and attach Form 8915 and Form 8606 (if required) to your amended income tax return for any qualified recovery assistance distributions. 1040ez on line See Form 8915 and Form 8606 on this page. 1040ez on line Form 8915. 1040ez on line   For a 2007 qualified recovery assistance distribution, complete the 2005 Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments. 1040ez on line Before you complete the form, modify the form as follows. 1040ez on line Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. 1040ez on line ” To the right of the title, cross out “2005” and enter “2007. 1040ez on line ” In Part I, at the top of column (a), cross out “2005” and enter “2007. 1040ez on line ” In Part II, cross out “Hurricane” in the title and enter “Recovery Assistance. 1040ez on line ” On lines 10 and 11, cross out “2005” and enter “2007. 1040ez on line ” In Part III, cross out “Hurricane” in the title and enter “Recovery Assistance. 1040ez on line ” On line 12, cross out “hurricane” and enter “recovery assistance. 1040ez on line ” On lines 13 and 14, cross out “line 15b” and “line 25b. 1040ez on line ” On lines 18 and 19, cross out “2005” and enter “2007. 1040ez on line ”   You can now complete Form 8915. 1040ez on line For the instructions, use the applicable dates and terms in this publication instead of those used in the 2005 Form 8915 instructions. 1040ez on line See Example 1 on page 5 to see how to complete Form 8915. 1040ez on line Form 8606. 1040ez on line   For a 2007 qualified recovery assistance distribution, complete or amend the 2007 Form 8606, Nondeductible IRAs. 1040ez on line Before you complete or amend the form, use the following additional instructions. 1040ez on line Form 8606, Part I. 1040ez on line    On line 6, subtract any repayments of qualified recovery assistance distributions from the amount you would otherwise enter on line 6. 1040ez on line Do not enter an amount less than -0-. 1040ez on line Include on line 7 the amount of any qualified recovery assistance distributions that you received even if they were later repaid. 1040ez on line Complete line 15 as follows. 1040ez on line If all of your distributions are qualified recovery assistance distributions, enter the amount from line 15 on Form 8915, line 13. 1040ez on line Do not enter this amount on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. 1040ez on line If you have qualified recovery assistance distributions as well as other distributions, you will need to multiply the amount on line 15 by a fraction. 1040ez on line The numerator of the fraction is your total qualified recovery assistance distributions and the denominator is the amount from Form 8606, line 7. 1040ez on line Enter the result in the white space in the bottom margin of the form under line 15. 1040ez on line To the left of this amount, enter “Qualified recovery assistance distributions” and also enter this amount on Form 8915, line 13. 1040ez on line Then, subtract this amount from the amount on line 15 and include the result on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. 1040ez on line Also, enter this amount on Form 8606 under your qualified recovery assistance distributions. 1040ez on line To the left of this amount, enter “Other distributions. 1040ez on line ” Form 8606, Part III. 1040ez on line    Include on line 19 the amount of any qualified recovery assistance distributions that you received even if they were later repaid. 1040ez on line Complete line 25 as follows. 1040ez on line If all of your distributions are qualified recovery assistance distributions, enter the amount from line 25 on Form 8915, line 14. 1040ez on line Do not enter this amount on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. 1040ez on line If you have qualified recovery assistance distributions as well as other distributions, you will need to multiply the amount on line 25 by a fraction. 1040ez on line The numerator of the fraction is your total qualified recovery assistance distributions and the denominator is the amount from Form 8606, line 21. 1040ez on line Enter the result in the white space in the bottom margin of the form under line 25. 1040ez on line To the left of this amount, enter “Qualified recovery assistance distributions” and also enter this amount on Form 8915, line 14. 1040ez on line Then, subtract this amount from the amount on line 25 and include the result on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. 1040ez on line Also, enter this amount on Form 8606 under your qualified recovery assistance distributions. 1040ez on line To the left of this amount, enter “Other distributions. 1040ez on line ” Example 1. 1040ez on line   On May 4, 2007, Margaret Maple lost her home due to the tornadoes on that day. 1040ez on line Her home was located in the Kansas disaster area. 1040ez on line On July 31, 2007, Margaret took out $30,000 from her 401(k) plan and an additional $15,000 from her traditional IRA in order to rebuild her home. 1040ez on line Margaret has not filed her 2007 return yet but would like to designate the $45,000 in distributions from her retirement plans as qualified recovery assistance distributions. 1040ez on line Since the distributions occurred in 2007, Margaret would modify and complete the 2005 Form 8915 as discussed on page 4. 1040ez on line Margaret would also need to complete Form 8606 since her distribution from her traditional IRA has nondeductible contributions from previous years. 1040ez on line   In addition to the $15,000 qualified recovery assistance distribution on July 31, 2007, Margaret received an additional distribution of $15,000 from her traditional IRA on October 31, 2007, that she did not designate as a qualified recovery assistance distribution. 1040ez on line Because Margaret has a qualified recovery assistance distribution as well as a distribution not so designated, Margaret must allocate the amount on Form 8606, line 15 to both distributions, as discussed earlier. 1040ez on line Margaret's qualified recovery assistance distributions are $13,125 ($26,250 × $15,000 ÷ $30,000). 1040ez on line Margaret enters in the white space in the bottom margin of Form 8606, the following, “Qualified recovery assistance distributions $13,125. 1040ez on line ” This amount is then reported on Form 8915, line 13. 1040ez on line Below this entry, Margaret enters “Other distributions $13,125,” and includes this amount on Form 1040, line 15b. 1040ez on line See Margaret's modified 2005 Form 8915 and 2007 Form 8606 shown on pages 6 through 8. 1040ez on line This image is too large to be displayed in the current screen. 1040ez on line Please click the link to view the image. 1040ez on line 2005 Form 8915, page 1, Illustrated Example 1. 1040ez on line This image is too large to be displayed in the current screen. 1040ez on line Please click the link to view the image. 1040ez on line 2005 Form 8915, page 2, Illustrated Example 1 This image is too large to be displayed in the current screen. 1040ez on line Please click the link to view the image. 1040ez on line Form 8606, page 1, Illustrated Example 1 2008 Qualified Recovery Assistance Distributions If you received a distribution in 2008 from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. 1040ez on line See Qualified recovery assistance distribution on page 3. 1040ez on line You will need to complete and attach Form 8915 and Form 8606 (if required) to your 2008 income tax return for any qualified recovery assistance distributions. 1040ez on line See Form 8915 and Form 8606 below. 1040ez on line Form 8915. 1040ez on line   For a 2008 qualified recovery assistance distribution, you will need to complete the 2006 Form 8915. 1040ez on line Before you complete the form, modify the form as follows. 1040ez on line Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. 1040ez on line ” To the right of the title, cross out “2006” and enter “2008. 1040ez on line ” In the first sentence of Part I and on line 1, cross out “hurricane” and enter “recovery assistance,” cross out “2006” and enter “2008,” and cross out “2005” and enter “2007. 1040ez on line ” At the top of column (a) cross out “2006” and enter “2008. 1040ez on line ” In Part II, cross out “Hurricane” in the title and enter “Recovery Assistance. 1040ez on line ” On lines 12, 14, and 15, cross out “2005” and enter “2007. 1040ez on line ” On lines 17 and 19, cross out “2006” and enter “2008. 1040ez on line ” In Part III, cross out “Hurricane” in the title and enter “Recovery Assistance. 1040ez on line ” On line 21, cross out “hurricane” and enter “recovery assistance. 1040ez on line ” On lines 22 and 23, cross out “line 15b” and “line 25b. 1040ez on line ” On lines 27, 29, and 30, cross out “2005” and enter “2007. 1040ez on line ” On lines 32 and 34, cross out “2006” and enter “2008. 1040ez on line ”   You can now complete Form 8915. 1040ez on line For the instructions, use the applicable dates and terms in this publication instead of those used in the 2006 Form 8915 instructions. 1040ez on line Example 2. 1040ez on line   On June 15, 2008, Margaret Maple, from the previous example, took out $15,000 from her 401(k) plan that she is designating as a qualified recovery assistance distribution. 1040ez on line Since the distribution occurred in 2008, Margaret would modify and complete the 2006 Form 8915 as discussed above. 1040ez on line Also, since Margaret is including her 2007 recovery assistance distributions in income over 3 years, she reports the applicable amount of those distributions on the modified 2006 Form 8915. 1040ez on line See Margaret's modified 2006 Form 8915 shown on pages 9 and 10. 1040ez on line This image is too large to be displayed in the current screen. 1040ez on line Please click the link to view the image. 1040ez on line 2006 Form 8915, page 1, Illustrated Example 2 This image is too large to be displayed in the current screen. 1040ez on line Please click the link to view the image. 1040ez on line 2006 Form 8915, page 2, Illustrated Example 2 Form 8606. 1040ez on line   For a 2008 qualified recovery assistance distribution, you may need to complete the 2008 Form 8606. 1040ez on line Before you complete Form 8606, use the additional instructions outlined in Form 8606, Part I, on page 4 and Form 8606, Part III, on this page. 1040ez on line Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Kansas disaster area, you can repay part or all of that distribution after May 3, 2007, but no later than October 22, 2008, to an eligible retirement plan. 1040ez on line For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. 1040ez on line To be a qualified distribution, the distribution must meet all of the following requirements. 1040ez on line The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. 1040ez on line The distribution was received after November 4, 2006, and before May 5, 2007. 1040ez on line The distribution was to be used to purchase or construct a main home in the Kansas disaster area that was not purchased or constructed because of the storms and tornadoes. 1040ez on line Amounts that are repaid before October 23, 2008, are treated as a qualified rollover and are not included in income. 1040ez on line Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. 1040ez on line A qualified distribution not repaid before October 23, 2008, may be taxable for 2006 or 2007 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. 1040ez on line You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before October 23, 2008. 1040ez on line See How to report, next, for information on completing Form 8915. 1040ez on line How to report. 1040ez on line   To report the repayment of a qualified distribution for the purchase or construction of a main home that was not purchased or constructed due to the storms and tornadoes, use the 2005 Form 8915, Part IV. 1040ez on line Before you complete the form, modify the form as follows. 1040ez on line Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. 1040ez on line ” To the right of the title, cross out “2005” and enter “2006” or “2007. 1040ez on line ” Enter only the year the distribution was received. 1040ez on line Cross out “Hurricane” in the title of Part IV and enter “Kansas. 1040ez on line ” In the sentence below the title of Part IV, cross out “March 1, 2006” and enter “October 23, 2008. 1040ez on line ” On line 24, cross out “March 1, 2006” and enter “October 23, 2008. 1040ez on line ” You can now complete Part IV of Form 8915. 1040ez on line Use the applicable dates and terms in this publication instead of those used in the 2005 Form 8915 instructions to complete the form. 1040ez on line Attach Form 8915 to your original or amended return for the year of the distribution. 1040ez on line Amended return. 1040ez on line   If you repay part or all of a qualified distribution by October 22, 2008, you will need to file an amended return for that part of a distribution that was previously included in income. 1040ez on line Loans From Qualified Plans The following benefits are available to qualified individuals. 1040ez on line Increases to the limits for distributions treated as loans from employer plans. 1040ez on line A 1-year suspension for payments due on plan loans. 1040ez on line Qualified individual. 1040ez on line   You are a qualified individual if your main home on May 4, 2007, was located in the Kansas disaster area and you had an economic loss because of the storms and tornadoes. 1040ez on line Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040ez on line Limits on plan loans. 1040ez on line   The $50,000 limit for distributions treated as plan loans is increased to $100,000. 1040ez on line In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. 1040ez on line If your home was located in the Kansas disaster area, the higher limits apply only to loans received during the period beginning on May 22, 2008, and ending on December 31, 2008. 1040ez on line One-year suspension of loan payments. 1040ez on line   Payments on plan loans outstanding after May 3, 2007, may be suspended for 1 year by the plan administrator. 1040ez on line To qualify for the suspension, the due date for any loan payment must occur during the period beginning on May 4, 2007, and ending on December 31, 2008. 1040ez on line Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified recovery assistance property (as defined below) you acquire after May 4, 2007. 1040ez on line The special allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). 1040ez on line The special allowance applies only for the first year the property is placed in service. 1040ez on line The special allowance is deductible for both the regular tax and the alternative minimum tax (AMT). 1040ez on line There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. 1040ez on line You can elect not to deduct the special allowance for qualified recovery assistance property. 1040ez on line If you make this election for any property, it applies to all property in the same class placed in service during the year. 1040ez on line Qualified recovery assistance property. 1040ez on line   Property that qualifies for the special allowance for qualified recovery assistance property includes the following. 1040ez on line Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. 1040ez on line Water utility property. 1040ez on line Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. 1040ez on line (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. 1040ez on line ) Qualified leasehold improvement property. 1040ez on line Nonresidential real property and residential rental property. 1040ez on line   For more information on this property, see Publication 946. 1040ez on line Other tests to be met. 1040ez on line   To be qualified recovery assistance property, the property must also meet all of the following tests. 1040ez on line You must have acquired the property, by purchase, after May 4, 2007, but only if no binding written contract for the acquisition was in effect before May 5, 2007. 1040ez on line The property must be placed in service before 2009 (2010 in the case of nonresidential real property and residential rental property). 1040ez on line Substantially all of the use of the property must be in the Kansas disaster area and in the active conduct of your trade or business in the Kansas disaster area. 1040ez on line The original use of the property in the Kansas disaster area must begin with you after May 4, 2007. 1040ez on line Used property can be qualified recovery assistance property if it has not previously been used within the Kansas disaster area. 1040ez on line Also, additional capital expenditures you incurred after May 4, 2007, to recondition or rebuild your property meet the original use test if the original use of the property in the Kansas disaster area began with you. 1040ez on line Excepted property. 1040ez on line   Qualified recovery assistance property does not include any of the following. 1040ez on line Property required to be depreciated using the Alternative Depreciation System (ADS). 1040ez on line Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. 1040ez on line Property for which you are claiming a commercial revitalization deduction. 1040ez on line Property in the same class as that for which you elected not to claim the special allowance for qualified recovery assistance property. 1040ez on line Property placed in service and disposed of in the same tax year. 1040ez on line Property converted from business use to personal use in the same tax year it is placed in service. 1040ez on line Property converted from personal use to business use in the same or later tax year may be qualified recovery assistance property. 1040ez on line Recapture of special allowance. 1040ez on line   If, in any year after the year you claim the special allowance, the property ceases to be qualified recovery assistance property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. 1040ez on line Amended return. 1040ez on line   If you have already filed your tax return, you may have to amend that return to claim any special allowance. 1040ez on line Additional guidance will be published on how you may claim, or elect not to claim, the special allowance if you have already filed your tax return. 1040ez on line Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 recovery assistance property (as defined later) placed in service in the Kansas disaster area. 1040ez on line Increased dollar limit. 1040ez on line   The limit on the section 179 deduction ($125,000 for 2007, $250,000 for 2008) is increased by the smaller of: $100,000, or The cost of qualified section 179 recovery assistance property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). 1040ez on line   The amount for which you can make the election is reduced if the cost of all section 179 property you placed in service during the year exceeds $500,000 for 2007 and $800,000 for 2008 increased by the smaller of: $600,000, or The cost of qualified section 179 recovery assistance property placed in service during the year. 1040ez on line Qualified section 179 recovery assistance property. 1040ez on line   Qualified section 179 recovery assistance property is section 179 property that is qualified recovery assistance property (explained earlier under Special Depreciation Allowance). 1040ez on line Section 179 property does not include nonresidential real property or residential rental property. 1040ez on line For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. 1040ez on line Amended return. 1040ez on line   If you have already filed your tax return, you may have to amend that return for any increased section 179 deduction. 1040ez on line Employee Retention Credit An eligible employer who conducted an active trade or business in the Kansas disaster area can claim the employee retention credit. 1040ez on line The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). 1040ez on line Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 1040ez on line Use Form 5884-A to claim the credit. 1040ez on line See Form 5884-A later. 1040ez on line The following rules and definitions apply. 1040ez on line Employers affected by the storms and tornadoes. 1040ez on line   The following definitions apply to employers affected by the storms and tornadoes. 1040ez on line Eligible employer. 1040ez on line   For this purpose, an eligible employer is any employer who meets all of the following. 1040ez on line Employed an average of not more than 200 employees on business days during the tax year before May 4, 2007. 1040ez on line Conducted an active trade or business on May 4, 2007, in the Kansas disaster area. 1040ez on line Whose trade or business was inoperable on any day after May 4, 2007, and before January 1, 2008, because of damage caused by the storms and tornadoes. 1040ez on line Eligible employee. 1040ez on line   For this purpose, an eligible employee is an employee whose principal place of employment on May 4, 2007, with the eligible employer was in the Kansas disaster area. 1040ez on line An employee is not an eligible employee for purposes of the storms and tornadoes if the employee is treated as an eligible employee for the work opportunity credit. 1040ez on line Qualified wages. 1040ez on line   Qualified wages are wages you paid or incurred before January 1, 2008, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before May 4, 2007, and ending on the date your trade or business resumed significant operations at that place. 1040ez on line In addition, the wages must have been paid or incurred after May 4, 2007. 1040ez on line    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. 1040ez on line    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). 1040ez on line Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. 1040ez on line Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. 1040ez on line   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. 1040ez on line For a special rule that applies to railroad employees, see section 51(h)(1)(B). 1040ez on line   Qualified wages do not include the following. 1040ez on line Wages paid to your dependent or a related individual. 1040ez on line See section 51(i)(1). 1040ez on line Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. 1040ez on line Wages for services of replacement workers during a strike or lockout. 1040ez on line Form 5884-A. 1040ez on line   Use Section A of Form 5884-A (Rev. 1040ez on line October 2006) to claim the employer retention credit. 1040ez on line Section B does not apply to the Kansas disaster area. 1040ez on line Before you complete the form, modify the form as follows. 1040ez on line Cross out “Hurricane Katrina, Rita, or Wilma” in the title at the top of the form and enter “Kansas Storms and Tornadoes. 1040ez on line ” On line 1a cross out “Hurricane Katrina” and enter “Kansas Storms and Tornadoes,” cross out “August 28, 2005,” and enter “May 4, 2007,” and cross out “January 1, 2006,” and enter “January 1, 2008. 1040ez on line ”   Complete the form as instructed. 1040ez on line Lines 1b and 1c do not apply. 1040ez on line Include the amount from Form 5884-A, line 4 in the amount entered on Form 3800, line 1x. 1040ez on line On the dotted line to the left of line 1x, enter “5884-A. 1040ez on line ” Use the applicable dates and terms in this publication instead of those used in the Form 5884-A instructions. 1040ez on line Amended return. 1040ez on line   You may have to amend a previously filed return to claim the employee retention credit. 1040ez on line Demolition and Clean-up Costs You can elect to deduct 50% of any qualified recovery assistance clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. 1040ez on line Qualified recovery assistance clean-up costs are any amounts paid or incurred after May 3, 2007, and before January 1, 2010, for the removal of debris from, or the demolition of structures on, real property located in the Kansas disaster area that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. 1040ez on line Amended return. 1040ez on line   If you have already filed your tax return, you may have to amend that return to claim the 50% of any qualified recovery assistance clean-up costs. 1040ez on line Request for Copy or Transcript of Tax Return Request for copy of tax return. 1040ez on line   You can use Form 4506 to order a copy of your tax return. 1040ez on line Generally, there is a $39. 1040ez on line 00 fee (subject to change) for requesting each copy of a tax return. 1040ez on line If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Kansas Storms”) is written in red across the top of the form when filed. 1040ez on line Request for transcript of tax return. 1040ez on line   You can use Form 4506-T to order a free transcript of your tax return. 1040ez on line A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. 1040ez on line You can also call 1-800-829-1040 to order a transcript. 1040ez on line How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. 1040ez on line By selecting the method that is best for you, you will have quick and easy access to tax help. 1040ez on line Contacting your Taxpayer Advocate. 1040ez on line   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. 1040ez on line   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. 1040ez on line You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. 1040ez on line You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. 1040ez on line For more information, go to www. 1040ez on line irs. 1040ez on line gov/advocate. 1040ez on line Low Income Taxpayer Clinics (LITCs). 1040ez on line   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. 1040ez on line The clinics also provide tax education and outreach for taxpayers who speak English as a second language. 1040ez on line Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. 1040ez on line It is available at www. 1040ez on line irs. 1040ez on line gov or your local IRS office. 1040ez on line Free tax services. 1040ez on line   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. 1040ez on line It contains lists of free tax information sources, including publications, services, and free tax education and assistance programs. 1040ez on line It also has an index of over 100 TeleTax topics, (recorded tax information) you can listen to on your telephone. 1040ez on line   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. 1040ez on line Free help with your return. 1040ez on line   Free help in preparing your return is available nationwide from IRS-trained volunteers. 1040ez on line The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers and Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. 1040ez on line Many VITA sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 1040ez on line To find a site near you, call 1-800-829-1040. 1040ez on line Or to find the nearest AARP TaxAide site, visit AARP's website at www. 1040ez on line aarp. 1040ez on line org/taxaide or call 1-888-227-7669. 1040ez on line For more information on these programs, go to www. 1040ez on line irs. 1040ez on line gov and enter keyword “VITA” in the upper right-hand corner. 1040ez on line Internet. 1040ez on line You can access the IRS website at www. 1040ez on line irs. 1040ez on line gov 24 hours a day, 7 days a week to: E-file your return. 1040ez on line Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 1040ez on line Check the status of your refund. 1040ez on line Click on Where's My Refund. 1040ez on line Wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). 1040ez on line Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez on line Download forms, instructions, and publications. 1040ez on line Order IRS products online. 1040ez on line Research your tax questions online. 1040ez on line Search publications online by topic or keyword. 1040ez on line View Internal Revenue Bulletins (IRBs) published in the last few years. 1040ez on line Figure your withholding allowances using the withholding calculator online at www. 1040ez on line irs. 1040ez on line gov/individuals. 1040ez on line Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. 1040ez on line Sign up to receive local and national tax news by email. 1040ez on line Get information on starting and operating a small business. 1040ez on line Phone. 1040ez on line Many services are available by phone. 1040ez on line Ordering forms, instructions, and publications. 1040ez on line Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. 1040ez on line You should receive your order within 10 days. 1040ez on line Asking tax questions. 1040ez on line Call the IRS with your tax questions at 1-800-829-1040. 1040ez on line Solving problems. 1040ez on line You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. 1040ez on line An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. 1040ez on line Call your local Taxpayer Assistance Center for an appointment. 1040ez on line To find the number, go to www. 1040ez on line irs. 1040ez on line gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040ez on line TTY/TDD equipment. 1040ez on line If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. 1040ez on line TeleTax topics. 1040ez on line Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. 1040ez on line Refund information. 1040ez on line To check the status of your refund, call 1-800-829-4477 and press 1 for automated refund information or call 1-800-829-1954. 1040ez on line Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). 1040ez on line Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez on line Evaluating the quality of our telephone services. 1040ez on line To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. 1040ez on line One method is for a second IRS representative to listen in on or record random telephone calls. 1040ez on line Another is to ask some callers to complete a short survey at the end of the call. 1040ez on line Walk-in. 1040ez on line Many products and services are available on a walk-in basis. 1040ez on line Products. 1040ez on line You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040ez on line Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. 1040ez on line Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. 1040ez on line Services. 1040ez on line You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. 1040ez on line An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. 1040ez on line If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. 1040ez on line No appointment is necessary — just walk in. 1040ez on line If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. 1040ez on line A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. 1040ez on line If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment may be requested. 1040ez on line All other issues will be handled without an appointment. 1040ez on line To find the number of your local office, go to www. 1040ez on line irs. 1040ez on line gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040ez on line Mail. 1040ez on line You can send your order for forms, instructions, and publications to the address below. 1040ez on line You should receive a response within 10 days after your request is received. 1040ez on line Internal Revenue Service 1201 N. 1040ez on line Mitsubishi Motorway Bloomington, IL 61705-6613 CD/DVD for tax products. 1040ez on line You can order Publication 1796, IRS Tax Products CD/DVD, and obtain: Current-year forms, instructions, and publications. 1040ez on line Prior-year forms, instructions, and publications. 1040ez on line Bonus: Historical Tax Products DVD - Ships with the final release. 1040ez on line IRS Tax Map: an electronic research tool and finding aid. 1040ez on line Tax law frequently asked questions (FAQ). 1040ez on line Tax Topics from the IRS telephone response system. 1040ez on line Fill-in, print, and save features for most tax forms. 1040ez on line Internal Revenue Bulletins. 1040ez on line Toll-free and email technical support. 1040ez on line The CD/DVD is released twice during the year in January and March. 1040ez on line Purchase the CD/DVD from National Technical Information Service (NTIS) at www. 1040ez on line irs. 1040ez on line gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5 handling fee). 1040ez on line Price is subject to change. 1040ez on line CD for small businesses. 1040ez on line Publication 3207, The Small Business Resource Guide CD, is a must for every small business owner or any taxpayer about to start a business. 1040ez on line This year's CD includes: Helpful information, such as how to prepare a business plan, find financing for your business, and much more. 1040ez on line All the business tax forms, instructions, and publications needed to successfully manage a business. 1040ez on line Tax law changes. 1040ez on line Tax Map: an electronic research tool and finding aid. 1040ez on line Web links to various government agencies, business associations, and IRS organizations. 1040ez on line “Rate the Product” survey—your opportunity to suggest changes for future editions. 1040ez on line A site map of the CD to help you navigate the pages of the CD with ease. 1040ez on line An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan, and filing taxes. 1040ez on line An updated version of this CD is available each year in early April. 1040ez on line You can get a free copy by calling 1-800-829-3676 or by visiting www. 1040ez on line irs. 1040ez on line gov/smallbiz. 1040ez on line Prev  Up  Next   Home   More Online Publications

Topic 304 - Extensions of Time to File Your Tax Return

There are three ways you can request an automatic extension of time to file a U.S. individual income tax return: (1) you can electronically file Form 4868 (PDF), Application For Automatic Extension of Time To File U.S. Individual Tax Return; (2) you can pay all or part of your estimated income tax due using a credit or debit card or by using the Electronic Federal Tax Payment System (EFTPS); or (3) you can file a paper Form 4868 by mail.

If you file your Form 4868 electronically you will receive an acknowledgement or confirmation number for your records and you do not need to mail in Form 4868. If you need to pay additional taxes when filing Form 4868 electronically, you may do so through the outside service provider or through e-file. You can refer to your tax software or tax professional for ways to file electronically using e-file services. Several companies offer free filing of Form 4868 through the Free File program that you can access on the IRS.gov website. If you wish to file electronically, be sure to have a copy of last year's tax return. You will be asked to provide the adjusted gross income (AGI) from the return for taxpayer verification.

A second way of requesting an automatic extension of time to file your individual income tax return is to pay part or your entire estimated income tax due by credit card or debit card or by using EFTPS. You may pay by phone or Internet through one of the service providers listed on Form 4868. Each service provider will charge a convenience fee based on the amount of the tax payment. At the completion of the transaction, you will receive a confirmation number for your records.

Finally, you can request an automatic extension of time to file your individual income tax return by completing paper Form 4868 and mailing it to the appropriate address provided on the form.

Please be aware that an extension of time to file is NOT an extension of time to pay.

For information regarding State Government filing, visit State Government Websites.

Page Last Reviewed or Updated: January 22, 2014

The 1040ez On Line

1040ez on line 11. 1040ez on line   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. 1040ez on line Kickbacks. 1040ez on line Form 1099-MISC. 1040ez on line Exception. 1040ez on line Tax preparation fees. 1040ez on line Covered executive branch official. 1040ez on line Exceptions to denial of deduction. 1040ez on line Indirect political contributions. 1040ez on line Type of deduction. 1040ez on line Repayment—$3,000 or less. 1040ez on line Repayment—over $3,000. 1040ez on line Method 1. 1040ez on line Method 2. 1040ez on line Repayment does not apply. 1040ez on line Year of deduction (or credit). 1040ez on line Telephone. 1040ez on line What's New Standard mileage rate. 1040ez on line  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. 1040ez on line 5 cents per mile. 1040ez on line For more information, see Car and truck expenses under Miscellaneous Expenses. 1040ez on line Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. 1040ez on line Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. 1040ez on line Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. 1040ez on line If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. 1040ez on line To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. 1040ez on line Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. 1040ez on line For more information on travel, meals, and entertainment, including deductibility, see Publication 463. 1040ez on line Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. 1040ez on line If the expenses are substantiated, you can deduct the allowable amount on your tax return. 1040ez on line Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. 1040ez on line For example, you can deduct 100% of the cost of meals on your business books and records. 1040ez on line However, only 50% of these costs are allowed by law as a tax deduction. 1040ez on line How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. 1040ez on line If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. 1040ez on line If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. 1040ez on line If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. 1040ez on line See Table 11-1 , Reporting Reimbursements. 1040ez on line Accountable Plans An accountable plan requires your employees to meet all of the following requirements. 1040ez on line Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. 1040ez on line An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. 1040ez on line The advance is reasonably calculated not to exceed the amount of anticipated expenses. 1040ez on line You make the advance within a reasonable period of time of your employee paying or incurring the expense. 1040ez on line If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. 1040ez on line Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. 1040ez on line Adequate accounting. 1040ez on line   Your employees must adequately account to you for their travel, meals, and entertainment expenses. 1040ez on line They must give you documentary evidence of their travel, mileage, and other employee business expenses. 1040ez on line This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. 1040ez on line Excess reimbursement or allowance. 1040ez on line   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. 1040ez on line The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. 1040ez on line Reasonable period of time. 1040ez on line   A reasonable period of time depends on the facts and circumstances. 1040ez on line Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. 1040ez on line You give an advance within 30 days of the time the employee pays or incurs the expense. 1040ez on line Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. 1040ez on line Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. 1040ez on line You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. 1040ez on line How to deduct. 1040ez on line   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. 1040ez on line Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. 1040ez on line If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). 1040ez on line   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. 1040ez on line S. 1040ez on line Corporation Income Tax Return. 1040ez on line If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. 1040ez on line Table 11-1. 1040ez on line Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. 1040ez on line Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. 1040ez on line Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. 1040ez on line Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. 1040ez on line The amount up to the federal rate is reported only in box 12—it is not reported in box 1. 1040ez on line Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. 1040ez on line The amount up to the federal rate is reported only in box 12—it is not reported in box 1. 1040ez on line A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. 1040ez on line No reimbursement plan The entire amount as wages in box 1. 1040ez on line Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. 1040ez on line In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. 1040ez on line Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. 1040ez on line Federal rate. 1040ez on line   The federal rate can be figured using any one of the following methods. 1040ez on line For car expenses: The standard mileage rate. 1040ez on line A fixed and variable rate (FAVR). 1040ez on line For per diem amounts: The regular federal per diem rate. 1040ez on line The standard meal allowance. 1040ez on line The high-low rate. 1040ez on line Car allowance. 1040ez on line   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. 1040ez on line Beginning in 2013, the standard business mileage rate is 56. 1040ez on line 5 cents per mile. 1040ez on line   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. 1040ez on line This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. 1040ez on line ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. 1040ez on line ). 1040ez on line For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. 1040ez on line irs. 1040ez on line gov/irb/2010-51_IRB/ar14. 1040ez on line html and Notice 2012-72, available at www. 1040ez on line irs. 1040ez on line gov/irb/2012-50_IRB/ar10. 1040ez on line html. 1040ez on line Per diem allowance. 1040ez on line   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. 1040ez on line Regular federal per diem rate. 1040ez on line   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. 1040ez on line It has two components: Lodging expense, and Meal and incidental expense (M&IE). 1040ez on line The rates are different for different locations. 1040ez on line Publication 1542 lists the rates in the continental United States. 1040ez on line Standard meal allowance. 1040ez on line   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. 1040ez on line You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). 1040ez on line Internet access. 1040ez on line    Per diem rates are available on the Internet. 1040ez on line You can access per diem rates at www. 1040ez on line gsa. 1040ez on line gov/perdiemrates. 1040ez on line High-low method. 1040ez on line   This is a simplified method of computing the federal per diem rate for travel within the continental United States. 1040ez on line It eliminates the need to keep a current list of the per diem rate for each city. 1040ez on line   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. 1040ez on line All other areas have a per diem amount of $163 ($52 for M&IE). 1040ez on line The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. 1040ez on line   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). 1040ez on line The rate for all other locations increased to $170 ($52 for M&IE). 1040ez on line For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. 1040ez on line However, you must use the same rate for all employees reimbursed under the high-low method. 1040ez on line   For more information about the high-low method, see Notice 2013-65, available at www. 1040ez on line irs. 1040ez on line gov/irb/2013-44_IRB/ar13. 1040ez on line html. 1040ez on line See Publication 1542 (available on the Internet at IRS. 1040ez on line gov) for the current per diem rates for all locations. 1040ez on line Reporting per diem and car allowances. 1040ez on line   The following discussion explains how to report per diem and car allowances. 1040ez on line The manner in which you report them depends on how the allowance compares to the federal rate. 1040ez on line See Table 11-1. 1040ez on line Allowance less than or equal to the federal rate. 1040ez on line   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. 1040ez on line Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). 1040ez on line See How to deduct under Accountable Plans, earlier. 1040ez on line Allowance more than the federal rate. 1040ez on line   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. 1040ez on line   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. 1040ez on line Deduct it as travel expenses (as explained above). 1040ez on line This part of the allowance is treated as reimbursed under an accountable plan. 1040ez on line   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. 1040ez on line Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. 1040ez on line This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. 1040ez on line Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. 1040ez on line The deduction limit applies even if you reimburse them for 100% of the expenses. 1040ez on line Application of the 50% limit. 1040ez on line   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. 1040ez on line It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. 1040ez on line The deduction limit may also apply to meals you furnish on your premises to your employees. 1040ez on line Related expenses. 1040ez on line   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. 1040ez on line Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. 1040ez on line However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. 1040ez on line Amount subject to 50% limit. 1040ez on line   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. 1040ez on line The per diem allowance. 1040ez on line The federal rate for M&IE. 1040ez on line   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. 1040ez on line If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. 1040ez on line Meal expenses when subject to “hours of service” limits. 1040ez on line   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. 1040ez on line   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. 1040ez on line De minimis (minimal) fringe benefit. 1040ez on line   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. 1040ez on line See Publication 15-B for additional information on de minimis fringe benefits. 1040ez on line Company cafeteria or executive dining room. 1040ez on line   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. 1040ez on line This includes the cost of maintaining the facilities for providing the food and beverages. 1040ez on line These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). 1040ez on line Employee activities. 1040ez on line   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. 1040ez on line The benefit must be primarily for your employees who are not highly compensated. 1040ez on line   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. 1040ez on line Owned a 10% or more interest in the business during the year or the preceding year. 1040ez on line An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. 1040ez on line Received more than $115,000 in pay for the preceding year. 1040ez on line You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. 1040ez on line   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. 1040ez on line Meals or entertainment treated as compensation. 1040ez on line   The 50% limit does not apply to either of the following. 1040ez on line Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. 1040ez on line Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. 1040ez on line Sales of meals or entertainment. 1040ez on line   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. 1040ez on line For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. 1040ez on line The 50% limit does not apply to this expense. 1040ez on line Providing meals or entertainment to general public to promote goodwill. 1040ez on line   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. 1040ez on line The 50% limit does not apply to this expense. 1040ez on line Director, stockholder, or employee meetings. 1040ez on line   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. 1040ez on line You can provide some minor social activities, but the main purpose of the meeting must be your company's business. 1040ez on line These expenses are subject to the 50% limit. 1040ez on line Trade association meetings. 1040ez on line   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. 1040ez on line These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. 1040ez on line Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. 1040ez on line All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. 1040ez on line The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. 1040ez on line You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. 1040ez on line Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. 1040ez on line Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. 1040ez on line Advertising expenses. 1040ez on line   You generally can deduct reasonable advertising expenses that are directly related to your business activities. 1040ez on line Generally, you cannot deduct amounts paid to influence legislation (i. 1040ez on line e. 1040ez on line , lobbying). 1040ez on line See Lobbying expenses , later. 1040ez on line   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. 1040ez on line For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. 1040ez on line S. 1040ez on line Savings Bonds, or to participate in similar causes is usually deductible. 1040ez on line Anticipated liabilities. 1040ez on line   Anticipated liabilities or reserves for anticipated liabilities are not deductible. 1040ez on line For example, assume you sold 1-year TV service contracts this year totaling $50,000. 1040ez on line From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. 1040ez on line You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. 1040ez on line You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. 1040ez on line Bribes and kickbacks. 1040ez on line   Engaging in the payment of bribes or kickbacks is a serious criminal matter. 1040ez on line Such activity could result in criminal prosecution. 1040ez on line Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. 1040ez on line   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. 1040ez on line Meaning of “generally enforced. 1040ez on line ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. 1040ez on line For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. 1040ez on line Kickbacks. 1040ez on line   A kickback is a payment for referring a client, patient, or customer. 1040ez on line The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. 1040ez on line In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. 1040ez on line   For example, the Yard Corporation is in the business of repairing ships. 1040ez on line It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. 1040ez on line Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. 1040ez on line These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. 1040ez on line Form 1099-MISC. 1040ez on line   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. 1040ez on line See Form 1099-MISC for more information. 1040ez on line Car and truck expenses. 1040ez on line   The costs of operating a car, truck, or other vehicle in your business are deductible. 1040ez on line For more information on how to figure your deduction, see Publication 463. 1040ez on line Charitable contributions. 1040ez on line   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. 1040ez on line If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. 1040ez on line However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. 1040ez on line See the Instructions for Form 1120 for more information. 1040ez on line Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). 1040ez on line Example. 1040ez on line You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. 1040ez on line The purpose of the ad was to encourage readers to buy your products. 1040ez on line Your payment is not a charitable contribution. 1040ez on line You can deduct it as an advertising expense. 1040ez on line Example. 1040ez on line You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. 1040ez on line Your payment is not a charitable contribution. 1040ez on line You can deduct it as a business expense. 1040ez on line See Publication 526 for a discussion of donated inventory, including capital gain property. 1040ez on line Club dues and membership fees. 1040ez on line   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. 1040ez on line This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 1040ez on line Exception. 1040ez on line   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. 1040ez on line Boards of trade. 1040ez on line Business leagues. 1040ez on line Chambers of commerce. 1040ez on line Civic or public service organizations. 1040ez on line Professional organizations such as bar associations and medical associations. 1040ez on line Real estate boards. 1040ez on line Trade associations. 1040ez on line Credit card convenience fees. 1040ez on line   Credit card companies charge a fee to businesses who accept their cards. 1040ez on line This fee when paid or incurred by the business can be deducted as a business expense. 1040ez on line Damages recovered. 1040ez on line   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. 1040ez on line You must include this compensation in your income. 1040ez on line However, you may be able to take a special deduction. 1040ez on line The deduction applies only to amounts recovered for actual economic injury, not any additional amount. 1040ez on line The deduction is the smaller of the following. 1040ez on line The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. 1040ez on line Your losses from the injury you have not deducted. 1040ez on line Demolition expenses or losses. 1040ez on line   Amounts paid or incurred to demolish a structure are not deductible. 1040ez on line These amounts are added to the basis of the land where the demolished structure was located. 1040ez on line Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. 1040ez on line Education expenses. 1040ez on line   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. 1040ez on line See Education Expenses in chapter 2. 1040ez on line   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. 1040ez on line You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. 1040ez on line For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. 1040ez on line   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. 1040ez on line This is true even if the education maintains or improves skills presently required in your business. 1040ez on line For more information on education expenses, see Publication 970. 1040ez on line Franchise, trademark, trade name. 1040ez on line   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). 1040ez on line   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. 1040ez on line   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. 1040ez on line Impairment-related expenses. 1040ez on line   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. 1040ez on line   You are disabled if you have either of the following. 1040ez on line A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. 1040ez on line A physical or mental impairment that substantially limits one or more of your major life activities. 1040ez on line   The expense qualifies as a business expense if all the following apply. 1040ez on line Your work clearly requires the expense for you to satisfactorily perform that work. 1040ez on line The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. 1040ez on line Their treatment is not specifically provided for under other tax law provisions. 1040ez on line Example. 1040ez on line You are blind. 1040ez on line You must use a reader to do your work, both at and away from your place of work. 1040ez on line The reader's services are only for your work. 1040ez on line You can deduct your expenses for the reader as a business expense. 1040ez on line Internet-related expenses. 1040ez on line   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. 1040ez on line If you are starting a business you may have to amortize these expenses as start-up costs. 1040ez on line For more information about amortizing start-up and organizational costs, see chapter 8. 1040ez on line Interview expense allowances. 1040ez on line   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. 1040ez on line You can deduct the reimbursements as a business expense. 1040ez on line However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. 1040ez on line Legal and professional fees. 1040ez on line   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. 1040ez on line However, usually legal fees you pay to acquire business assets are not deductible. 1040ez on line These costs are added to the basis of the property. 1040ez on line   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. 1040ez on line If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. 1040ez on line The result is the portion of the invoice attributable to business expenses. 1040ez on line The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). 1040ez on line   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. 1040ez on line However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. 1040ez on line See Publication 529, Miscellaneous Deductions. 1040ez on line Tax preparation fees. 1040ez on line   The cost of hiring a tax professional, such as a C. 1040ez on line P. 1040ez on line A. 1040ez on line , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. 1040ez on line Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. 1040ez on line   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. 1040ez on line Licenses and regulatory fees. 1040ez on line   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. 1040ez on line Some licenses and fees may have to be amortized. 1040ez on line See chapter 8 for more information. 1040ez on line Lobbying expenses. 1040ez on line   Generally, lobbying expenses are not deductible. 1040ez on line Lobbying expenses include amounts paid or incurred for any of the following activities. 1040ez on line Influencing legislation. 1040ez on line Participating in or intervening in any political campaign for, or against, any candidate for public office. 1040ez on line Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. 1040ez on line Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. 1040ez on line Researching, preparing, planning, or coordinating any of the preceding activities. 1040ez on line   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. 1040ez on line For information on making this allocation, see section 1. 1040ez on line 162-28 of the regulations. 1040ez on line   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. 1040ez on line The organization conducts lobbying activities on matters of direct financial interest to your business. 1040ez on line A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. 1040ez on line   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. 1040ez on line Covered executive branch official. 1040ez on line   For purposes of this discussion, a covered executive branch official is any of the following. 1040ez on line The President. 1040ez on line The Vice President. 1040ez on line Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. 1040ez on line Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). 1040ez on line Exceptions to denial of deduction. 1040ez on line   The general denial of the deduction does not apply to the following. 1040ez on line Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. 1040ez on line An Indian tribal government is treated as a local council or similar governing body. 1040ez on line Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). 1040ez on line Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). 1040ez on line Moving machinery. 1040ez on line   Generally, the cost of moving machinery from one city to another is a deductible expense. 1040ez on line So is the cost of moving machinery from one plant to another, or from one part of your plant to another. 1040ez on line You can deduct the cost of installing the machinery in the new location. 1040ez on line However, you must capitalize the costs of installing or moving newly purchased machinery. 1040ez on line Outplacement services. 1040ez on line   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. 1040ez on line are deductible. 1040ez on line   The costs of outplacement services may cover more than one deduction category. 1040ez on line For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. 1040ez on line   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. 1040ez on line Penalties and fines. 1040ez on line   Penalties paid for late performance or nonperformance of a contract are generally deductible. 1040ez on line For instance, you own and operate a construction company. 1040ez on line Under a contract, you are to finish construction of a building by a certain date. 1040ez on line Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. 1040ez on line You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. 1040ez on line These additional costs are deductible business expenses. 1040ez on line   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. 1040ez on line These fines or penalties include the following amounts. 1040ez on line Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. 1040ez on line Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. 1040ez on line Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. 1040ez on line Forfeited as collateral posted for a proceeding that could result in a fine or penalty. 1040ez on line   Examples of nondeductible penalties and fines include the following. 1040ez on line Fines for violating city housing codes. 1040ez on line Fines paid by truckers for violating state maximum highway weight laws. 1040ez on line Fines for violating air quality laws. 1040ez on line Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. 1040ez on line   A fine or penalty does not include any of the following. 1040ez on line Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. 1040ez on line Court costs or stenographic and printing charges. 1040ez on line Compensatory damages paid to a government. 1040ez on line Political contributions. 1040ez on line   Contributions or gifts paid to political parties or candidates are not deductible. 1040ez on line In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. 1040ez on line Indirect political contributions. 1040ez on line   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. 1040ez on line Examples of nondeductible expenses include the following. 1040ez on line Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. 1040ez on line Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. 1040ez on line Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. 1040ez on line Repairs. 1040ez on line   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. 1040ez on line Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. 1040ez on line Otherwise, the cost must be capitalized and depreciated. 1040ez on line See Form 4562 and its instructions for how to compute and claim the depreciation deduction. 1040ez on line   The cost of repairs includes the costs of labor, supplies, and certain other items. 1040ez on line The value of your own labor is not deductible. 1040ez on line Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). 1040ez on line Repayments. 1040ez on line   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. 1040ez on line Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. 1040ez on line Type of deduction. 1040ez on line   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. 1040ez on line For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. 1040ez on line If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). 1040ez on line   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. 1040ez on line However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. 1040ez on line Repayment—$3,000 or less. 1040ez on line   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. 1040ez on line Repayment—over $3,000. 1040ez on line   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. 1040ez on line However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. 1040ez on line ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. 1040ez on line If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. 1040ez on line Method 1. 1040ez on line   Figure your tax for 2013 claiming a deduction for the repaid amount. 1040ez on line Method 2. 1040ez on line   Figure your tax for 2013 claiming a credit for the repaid amount. 1040ez on line Follow these steps. 1040ez on line Figure your tax for 2013 without deducting the repaid amount. 1040ez on line Refigure your tax from the earlier year without including in income the amount you repaid in 2013. 1040ez on line Subtract the tax in (2) from the tax shown on your return for the earlier year. 1040ez on line This is the amount of your credit. 1040ez on line Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). 1040ez on line   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. 1040ez on line   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. 1040ez on line R. 1040ez on line C. 1040ez on line 1341” next to line 71. 1040ez on line Example. 1040ez on line For 2012, you filed a return and reported your income on the cash method. 1040ez on line In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. 1040ez on line Your filing status in 2013 and 2012 is single. 1040ez on line Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. 1040ez on line Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. 1040ez on line Repayment does not apply. 1040ez on line   This discussion does not apply to the following. 1040ez on line Deductions for bad debts. 1040ez on line Deductions from sales to customers, such as returns and allowances, and similar items. 1040ez on line Deductions for legal and other expenses of contesting the repayment. 1040ez on line Year of deduction (or credit). 1040ez on line   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. 1040ez on line If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. 1040ez on line For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. 1040ez on line Subscriptions. 1040ez on line   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. 1040ez on line Supplies and materials. 1040ez on line   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. 1040ez on line   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. 1040ez on line You do not keep a record of when they are used. 1040ez on line You do not take an inventory of the amount on hand at the beginning and end of the tax year. 1040ez on line This method does not distort your income. 1040ez on line   You can also deduct the cost of books, professional instruments, equipment, etc. 1040ez on line , if you normally use them within a year. 1040ez on line However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. 1040ez on line For more information regarding depreciation see Publication 946, How To Depreciate Property. 1040ez on line Utilities. 1040ez on line   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. 1040ez on line However, any part due to personal use is not deductible. 1040ez on line Telephone. 1040ez on line   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. 1040ez on line However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. 1040ez on line Prev  Up  Next   Home   More Online Publications