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1040x Irs

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1040x Irs

1040x irs Publication 970 - Additional Material Table of Contents AppendicesAppendix A. 1040x irs Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. 1040x irs Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. 1040x irs Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. 1040x irs It is intended only as a guide. 1040x irs Look in this publication for more complete information. 1040x irs   Appendix A. 1040x irs Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). 1040x irs Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. 1040x irs Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. 1040x irs Sean enrolled as a full-time graduate student in August 2013 at California State College. 1040x irs He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. 1040x irs His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. 1040x irs Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. 1040x irs In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. 1040x irs California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. 1040x irs California State College reports amounts billed in 2013 instead of amounts paid during 2013. 1040x irs In completing Form 8863, the Joneses use the amounts they paid. 1040x irs Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. 1040x irs Dave and Valerie figure their education credits by completing Form 8863. 1040x irs They begin Form 8863 on page 2 before completing Part I on page 1. 1040x irs Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. 1040x irs The Joneses decide to complete Part III for Carey first, as shown later. 1040x irs They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. 1040x irs The Joneses complete a separate Part III for their son Sean. 1040x irs They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. 1040x irs They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. 1040x irs Once they have completed Part III for each student, they figure their credits. 1040x irs The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. 1040x irs They enter the amount from line 8, $1,000, on line 66 of their Form 1040. 1040x irs The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). 1040x irs They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. 1040x irs They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. 1040x irs The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. 1040x irs The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. 1040x irs They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. 1040x irs This image is too large to be displayed in the current screen. 1040x irs Please click the link to view the image. 1040x irs Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 1040x irs Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. 1040x irs Less adjustments:     a. 1040x irs Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 1040x irs Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 1040x irs Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 1040x irs Total adjustments (add lines 2a, 2b, and 2c) 0 4. 1040x irs Adjusted qualified education expenses. 1040x irs Subtract line 3 from line 1. 1040x irs If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. 1040x irs Please click the link to view the image. 1040x irs Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 1040x irs Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. 1040x irs Less adjustments:     a. 1040x irs Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 1040x irs Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 1040x irs Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 1040x irs Total adjustments (add lines 2a, 2b, and 2c) 0 4. 1040x irs Adjusted qualified education expenses. 1040x irs Subtract line 3 from line 1. 1040x irs If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. 1040x irs Enter the amount from Form 8863, line 18 1. 1040x irs 1,190 2. 1040x irs Enter the amount from Form 8863, line 9 2. 1040x irs 1,500 3. 1040x irs Add lines 1 and 2 3. 1040x irs 2,690 4. 1040x irs Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. 1040x irs 1,000 5. 1040x irs Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. 1040x irs 0 6. 1040x irs Subtract line 5 from line 4 6. 1040x irs 1,000 7. 1040x irs   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. 1040x irs 1,000 This image is too large to be displayed in the current screen. 1040x irs Please click the link to view the image. 1040x irs Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. 1040x irs Please click the link to view the image. 1040x irs Carey Jones page 2 This image is too large to be displayed in the current screen. 1040x irs Please click the link to view the image. 1040x irs Filled-in Form 8863 Jones page 2 Appendix B. 1040x irs Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. 1040x irs See the text for definitions and details. 1040x irs Do not rely on this chart alone. 1040x irs    Caution:You generally cannot claim more than one benefit for the same education expense. 1040x irs   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. 1040x irs    40% of the credit may be refundable (limited to $1,000 per student). 1040x irs Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. 1040x irs , that must be paid to the educational institution, etc. 1040x irs , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. 1040x irs   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. 1040x irs Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. 1040x irs For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. 1040x irs For each term listed below that has more than one definition, the definition for each education benefit is listed. 1040x irs Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 1040x irs If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 1040x irs Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. 1040x irs They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. 1040x irs For information on a specific benefit, see the appropriate chapter in this publication. 1040x irs Candidate for a degree:   A student who meets either of the following requirements. 1040x irs Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. 1040x irs Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. 1040x irs Eligible educational institution:    American opportunity credit. 1040x irs Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 1040x irs It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 1040x irs Coverdell education savings account (ESA). 1040x irs Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 1040x irs It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 1040x irs Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. 1040x irs Education savings bond program. 1040x irs Same as American opportunity credit in this category. 1040x irs IRA, early distributions from. 1040x irs Same as American opportunity credit in this category. 1040x irs Lifetime learning credit. 1040x irs Same as American opportunity credit in this category. 1040x irs Qualified tuition program (QTP). 1040x irs Same as American opportunity credit in this category. 1040x irs Scholarships and fellowships. 1040x irs An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 1040x irs Student loan, cancellation of. 1040x irs Same as Scholarships and fellowships in this category. 1040x irs Student loan interest deduction. 1040x irs Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 1040x irs It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 1040x irs Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. 1040x irs Tuition and fees deduction. 1040x irs Same as American opportunity credit in this category. 1040x irs Eligible student:    American opportunity credit. 1040x irs A student who meets all of the following requirements for the tax year for which the credit is being determined. 1040x irs Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. 1040x irs Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). 1040x irs For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. 1040x irs Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. 1040x irs Lifetime learning credit. 1040x irs A student who is enrolled in one or more courses at an eligible educational institution. 1040x irs Student loan interest deduction. 1040x irs A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. 1040x irs Tuition and fees deduction. 1040x irs A student who is enrolled in one or more courses at an eligible educational institution. 1040x irs Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. 1040x irs Modified adjusted gross income (MAGI):    American opportunity credit. 1040x irs Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 1040x irs Coverdell education savings account (ESA). 1040x irs Same as American opportunity credit in this category. 1040x irs Education savings bond program. 1040x irs Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. 1040x irs Lifetime learning credit. 1040x irs Same as American opportunity credit in this category. 1040x irs Student loan interest deduction. 1040x irs Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 1040x irs Tuition and fees deduction. 1040x irs Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 1040x irs Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. 1040x irs Qualified education expenses:   See pertinent chapter for specific items. 1040x irs    American opportunity credit. 1040x irs Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. 1040x irs Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. 1040x irs Does not include expenses for room and board. 1040x irs Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. 1040x irs Coverdell education savings account (ESA). 1040x irs Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. 1040x irs Many specialized expenses included for K–12. 1040x irs Also includes expenses for special needs services and contribution to qualified tuition program (QTP). 1040x irs Education savings bond program. 1040x irs Tuition and fees required to enroll at or attend an eligible educational institution. 1040x irs Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). 1040x irs Does not include expenses for room and board. 1040x irs Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. 1040x irs IRA, early distributions from. 1040x irs Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 1040x irs Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. 1040x irs Lifetime learning credit. 1040x irs Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 1040x irs Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 1040x irs Does not include expenses for room and board. 1040x irs Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. 1040x irs Qualified tuition program (QTP). 1040x irs Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 1040x irs Includes expenses for special needs services and computer access. 1040x irs Scholarships and fellowships. 1040x irs Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 1040x irs Course-related items must be required of all students in the course of instruction. 1040x irs Student loan interest deduction. 1040x irs Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). 1040x irs Tuition and fees deduction. 1040x irs Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 1040x irs Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 1040x irs Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. 1040x irs To include as tax on your current year's return an amount allowed as a credit in a prior year. 1040x irs Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. 1040x irs Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. 1040x irs Prev  Up  Next   Home   More Online Publications
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1040x irs 5. 1040x irs   Recordkeeping Table of Contents How To Prove ExpensesWhat Are Adequate Records? What If I Have Incomplete Records? Separating and Combining Expenses How Long To Keep Records and Receipts Examples of Records If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. 1040x irs This chapter discusses the records you need to keep to prove these expenses. 1040x irs If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. 1040x irs You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. 1040x irs These plans are discussed in chapter 6 under Reimbursements . 1040x irs How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. 1040x irs You must be able to prove the elements listed across the top portion of the chart. 1040x irs You prove them by having the information and receipts (where needed) for the expenses listed in the first column. 1040x irs You cannot deduct amounts that you approximate or estimate. 1040x irs You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. 1040x irs You must generally prepare a written record for it to be considered adequate. 1040x irs This is because written evidence is more reliable than oral evidence alone. 1040x irs However, if you prepare a record on a computer, it is considered an adequate record. 1040x irs What Are Adequate Records? You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. 1040x irs You should also keep documentary evidence that, together with your record, will support each element of an expense. 1040x irs Documentary evidence. 1040x irs   You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. 1040x irs Exception. 1040x irs   Documentary evidence is not needed if any of the following conditions apply. 1040x irs You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. 1040x irs ( Accountable plans and per diem allowances are discussed in chapter 6. 1040x irs ) Your expense, other than lodging, is less than $75. 1040x irs You have a transportation expense for which a receipt is not readily available. 1040x irs Adequate evidence. 1040x irs   Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. 1040x irs   For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. 1040x irs The name and location of the hotel. 1040x irs The dates you stayed there. 1040x irs Separate amounts for charges such as lodging, meals, and telephone calls. 1040x irs   A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. 1040x irs The name and location of the restaurant. 1040x irs The number of people served. 1040x irs The date and amount of the expense. 1040x irs If a charge is made for items other than food and beverages, the receipt must show that this is the case. 1040x irs Canceled check. 1040x irs   A canceled check, together with a bill from the payee, ordinarily establishes the cost. 1040x irs However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. 1040x irs Duplicate information. 1040x irs   You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. 1040x irs   You do not have to record amounts your employer pays directly for any ticket or other travel item. 1040x irs However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. 1040x irs Timely-kept records. 1040x irs   You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. 1040x irs A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. 1040x irs   You do not need to write down the elements of every expense on the day of the expense. 1040x irs If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. 1040x irs   If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. 1040x irs This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. 1040x irs Proving business purpose. 1040x irs   You must generally provide a written statement of the business purpose of an expense. 1040x irs However, the degree of proof varies according to the circumstances in each case. 1040x irs If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. 1040x irs Example. 1040x irs If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. 1040x irs You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. 1040x irs You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. 1040x irs Confidential information. 1040x irs   You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. 1040x irs However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. 1040x irs What If I Have Incomplete Records? If you do not have complete records to prove an element of an expense, then you must prove the element with: Your own written or oral statement containing specific information about the element, and Other supporting evidence that is sufficient to establish the element. 1040x irs If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. 1040x irs Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. 1040x irs Documentary evidence can be receipts, paid bills, or similar evidence. 1040x irs If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. 1040x irs For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. 1040x irs Invoices of deliveries establish when you used the car for business. 1040x irs Table 5-1. 1040x irs How To Prove Certain Business Expenses IF you have expenses for . 1040x irs . 1040x irs THEN you must keep records that show details of the following elements . 1040x irs . 1040x irs . 1040x irs   Amount Time Place or  Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. 1040x irs Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. 1040x irs Dates you left and returned for each trip and number of days spent on business. 1040x irs Destination or area of your travel (name of city, town, or other designation). 1040x irs Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. 1040x irs    Relationship: N/A Entertainment Cost of each separate expense. 1040x irs Incidental expenses such as taxis, telephones, etc. 1040x irs , may be totaled on a daily basis. 1040x irs Date of entertainment. 1040x irs (Also see Business Purpose. 1040x irs ) Name and address or location of place of entertainment. 1040x irs Type of entertainment if not otherwise apparent. 1040x irs (Also see Business Purpose. 1040x irs ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. 1040x irs  For entertainment, the nature of the business discussion or activity. 1040x irs If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. 1040x irs    Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. 1040x irs  For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. 1040x irs Gifts Cost of the gift. 1040x irs Date of the gift. 1040x irs Description of the gift. 1040x irs   Transportation Cost of each separate expense. 1040x irs For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. 1040x irs Date of the expense. 1040x irs For car expenses, the date of the use of the car. 1040x irs Your business destination. 1040x irs Purpose: Business purpose for the expense. 1040x irs    Relationship: N/A Sampling. 1040x irs   You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. 1040x irs You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. 1040x irs Example. 1040x irs You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. 1040x irs There is no other business use of the car, but you and your family use the car for personal purposes. 1040x irs You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. 1040x irs Invoices and bills show that your business use continues at the same rate during the later weeks of each month. 1040x irs Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year. 1040x irs Exceptional circumstances. 1040x irs   You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. 1040x irs This applies if all the following are true. 1040x irs You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records . 1040x irs You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . 1040x irs You have presented other evidence for the element that is the best proof possible under the circumstances. 1040x irs Destroyed records. 1040x irs   If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. 1040x irs Reasons beyond your control include fire, flood, and other casualties. 1040x irs    Table 5-2. 1040x irs Daily Business Mileage and Expense Log Name:       Odometer Readings Expenses Date Destination  (City, Town, or Area) Business Purpose Start Stop Miles  this trip Type  (Gas, oil, tolls, etc. 1040x irs ) Amount                                                                                                                   Weekly  Total             Total Year-to-Date             Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. 1040x irs Separating expenses. 1040x irs   Each separate payment is generally considered a separate expense. 1040x irs For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. 1040x irs You must record them separately in your records. 1040x irs Season or series tickets. 1040x irs   If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. 1040x irs To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. 1040x irs You must keep records to show whether you use each ticket as a gift or entertainment. 1040x irs Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. 1040x irs See Entertainment tickets in chapter 2. 1040x irs Combining items. 1040x irs   You can make one daily entry in your record for reasonable categories of expenses. 1040x irs Examples are taxi fares, telephone calls, or other incidental travel costs. 1040x irs Meals should be in a separate category. 1040x irs You can include tips for meal-related services with the costs of the meals. 1040x irs   Expenses of a similar nature occurring during the course of a single event are considered a single expense. 1040x irs For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. 1040x irs Car expenses. 1040x irs   You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. 1040x irs Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. 1040x irs Example. 1040x irs You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. 1040x irs You can account for these using a single record of miles driven. 1040x irs Gift expenses. 1040x irs   You do not always have to record the name of each recipient of a gift. 1040x irs A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. 1040x irs For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. 1040x irs Allocating total cost. 1040x irs   If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. 1040x irs To do so, you must establish the number of persons who participated in the event. 1040x irs   An allocation would be needed, for example, if you did not have a business relationship with all of your guests. 1040x irs See Allocating between business and nonbusiness in chapter 2. 1040x irs If your return is examined. 1040x irs    If your return is examined, you may have to provide additional information to the IRS. 1040x irs This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. 1040x irs    THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. 1040x irs Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. 1040x irs Travel Expenses: Airlines                                 Excess Baggage                                 Bus – Train                                 Cab and Limousine                                 Tips                                 Porter                                 2. 1040x irs Meals and Lodging:  Breakfast                                 Lunch                                 Dinner                                 Hotel and Motel  (Detail in Schedule B)                                 3. 1040x irs Entertainment  (Detail in Schedule C)                                 4. 1040x irs Other Expenses:  Postage                                 Telephone & Telegraph                                 Stationery & Printing                                 Stenographer                                 Sample Room                                 Advertising                                 Assistant(s)                                 Trade Shows                                 5. 1040x irs Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. 1040x irs ) (Detail mileage in Schedule A. 1040x irs ) Gas, oil, lube, wash                                 Repairs, parts                                 Tires, supplies                                 Parking fees, tolls                                 6. 1040x irs Other (Identify)                                 Total                                 Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. 1040x irs 00 or more. 1040x irs Schedule A – Car Mileage: End                 Start                 Total                 Business Mileage                 Schedule B – Lodging Hotel or Motel Name                 City                 Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship                                             WEEKLY REIMBURSEMENTS:     Travel and transportation expenses     Other reimbursements     TOTAL   How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. 1040x irs Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. 1040x irs A return filed early is considered filed on the due date. 1040x irs For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. 1040x irs You must keep records of the business use of your car for each year of the recovery period. 1040x irs See More-than-50%-use test in chapter 4 under Depreciation Deduction. 1040x irs Reimbursed for expenses. 1040x irs   Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. 1040x irs However, you may have to prove your expenses if any of the following conditions apply. 1040x irs You claim deductions for expenses that are more than reimbursements. 1040x irs Your expenses are reimbursed under a nonaccountable plan. 1040x irs Your employer does not use adequate accounting procedures to verify expense accounts. 1040x irs You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. 1040x irs Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. 1040x irs Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. 1040x irs Prev  Up  Next   Home   More Online Publications