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1080ez 1. 1080ez   Tax Withholding for 2014 Table of Contents Introduction Useful Items - You may want to see: Salaries and WagesDetermining Amount of Tax Withheld Using Form W-4 Completing Form W-4 and Worksheets Getting the Right Amount of Tax Withheld Rules Your Employer Must Follow Exemption From Withholding Supplemental Wages Penalties Tips Taxable Fringe BenefitsSpecial rule. 1080ez Exceptions. 1080ez Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. 1080ez Identical wagers. 1080ez Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. 1080ez Underreported interest or dividends. 1080ez Introduction This chapter discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. 1080ez This chapter explains in detail the rules for withholding tax from each of these types of income. 1080ez The discussion of salaries and wages includes an explanation of how to complete Form W-4. 1080ez This chapter also covers backup withholding on interest, dividends, and other payments. 1080ez Useful Items - You may want to see: Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request See chapter 5 of this publication for information about getting these publications and forms. 1080ez Salaries and Wages Income tax is withheld from the pay of most employees. 1080ez Your pay includes your regular pay, bonuses, commissions, and vacation allowances. 1080ez It also includes reimbursements and other expense allowances paid under a nonaccountable plan. 1080ez See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. 1080ez If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. 1080ez This is explained under Exemption From Withholding , later. 1080ez You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. 1080ez If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2. 1080ez Military retirees. 1080ez   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. 1080ez Household workers. 1080ez   If you are a household worker, you can ask your employer to withhold income tax from your pay. 1080ez A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. 1080ez   Tax is withheld only if you want it withheld and your employer agrees to withhold it. 1080ez If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. 1080ez Farmworkers. 1080ez   Generally, income tax is withheld from your cash wages for work on a farm unless your employer both: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. 1080ez Differential wage payments. 1080ez   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. 1080ez Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. 1080ez The wages and withholding will be reported on Form W-2, Wage and Tax Statement. 1080ez Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. 1080ez The amount you earn in each payroll period. 1080ez The information you give your employer on Form W-4. 1080ez Form W-4 includes four types of information that your employer will use to figure your withholding. 1080ez Whether to withhold at the single rate or at the lower married rate. 1080ez How many withholding allowances you claim (each allowance reduces the amount withheld). 1080ez Whether you want an additional amount withheld. 1080ez Whether you are claiming an exemption from withholding in 2014. 1080ez See Exemption From Withholding , later. 1080ez Note. 1080ez You must specify a filing status and a number of withholding allowances on Form W-4. 1080ez You cannot specify only a dollar amount of withholding. 1080ez New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. 1080ez Your employer should have copies of the form. 1080ez If you need to change the information later, you must fill out a new form. 1080ez If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. 1080ez You may be able to avoid overwithholding if your employer agrees to use the part-year method. 1080ez See Part-Year Method , later, for more information. 1080ez Employee also receiving pension income. 1080ez   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. 1080ez However, you can choose to split your withholding allowances between your pension and job in any manner. 1080ez Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. 1080ez When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. 1080ez If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. 1080ez See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. 1080ez Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. 1080ez See Table 1-1 for examples of personal and financial changes you should consider. 1080ez Table 1-1. 1080ez Personal and Financial Changes Factor Examples Lifestyle change Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement Filing chapter 11 bankruptcy Wage income You or your spouse start or stop working, or start or stop a second job Change in the amount of taxable income not subject to withholding Interest income Dividends Capital gains Self-employment income IRA (including certain Roth  IRA) distributions Change in the amount of adjustments to income IRA deduction Student loan interest deduction Alimony expense Change in the amount of itemized deductions or tax credits Medical expenses Taxes Interest expense Gifts to charity Job expenses Dependent care expenses Education credit Child tax credit Earned income credit If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method , explained later. 1080ez Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. 1080ez If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. 1080ez You can get a blank Form W-4 from your employer or print the form from IRS. 1080ez gov. 1080ez You should try to have your withholding match your actual tax liability. 1080ez If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. 1080ez If too much tax is withheld, you will lose the use of that money until you get your refund. 1080ez Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. 1080ez See Table 1-1 for examples. 1080ez Note. 1080ez You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax. 1080ez When Should You Check Your Withholding? The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. 1080ez You should check your withholding when any of the following situations occur. 1080ez You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. 1080ez You prepare your 2013 tax return and get a: Big refund, or Balance due that is: More than you can comfortably pay, or Subject to a penalty. 1080ez There are changes in your life or financial situation that affect your tax liability. 1080ez See Table 1-1. 1080ez There are changes in the tax law that affect your tax liability. 1080ez How Do You Check Your Withholding? You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. 1080ez You can also use the IRS Withholding calculator at www. 1080ez irs. 1080ez gov/individuals. 1080ez If you use the worksheets and tables in this publication, follow these steps. 1080ez Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. 1080ez Fill out Worksheet 1-7 to project your total federal withholding for 2014 and compare that with your projected tax liability from Worksheet 1-5. 1080ez If you are not having enough tax withheld, line 6 of Worksheet 1-7 will show you how much more to have withheld each payday. 1080ez For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding? If line 5 of Worksheet 1-7 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday. 1080ez How Do You Increase Your Withholding? There are two ways to increase your withholding. 1080ez You can: Decrease the number of allowances you claim on Form W-4, or Enter an additional amount that you want withheld from each paycheck on Form W-4. 1080ez Requesting an additional amount withheld. 1080ez   You can request that an additional amount be withheld from each paycheck by following these steps. 1080ez Complete Worksheets 1-5 and 1-7. 1080ez Complete a new Form W-4 if the amount on Worksheet 1-7, line 5: Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or Would cause you to pay a penalty when you file your tax return for 2014. 1080ez Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. 1080ez This is the number of allowances you entered on the last Form W-4 you gave your employer. 1080ez Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. 1080ez Give your newly completed Form W-4 to your employer. 1080ez   If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year. 1080ez Example. 1080ez Early in 2014, Steve Miller used Worksheets 1-5, 1-6, and 1-7 to project his 2014 tax liability ($4,316) and his withholding for the year ($3,516). 1080ez Steve's tax will be underwithheld by $800 ($4,316 − $3,516). 1080ez His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. 1080ez Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. 1080ez Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on the form as the additional amount to be withheld from his pay each payday. 1080ez He gives the completed form to his employer. 1080ez What if I have more than one job or my spouse also has a job?   You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. 1080ez If this is the case, you can increase your withholding for one or more of the jobs. 1080ez   You can apply the amount on Worksheet 1-7, line 5, to only one job or divide it between the jobs any way you wish. 1080ez For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2014 for that job. 1080ez This will give you the additional amount to enter on the Form W-4 you will file for that job. 1080ez You need to give your employer a new Form W-4 for each job for which you are changing your withholding. 1080ez Example. 1080ez Meg Green works in a store and earns $46,000 a year. 1080ez Her husband, John, works full-time in manufacturing and earns $68,000 a year. 1080ez In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. 1080ez They expect to file a joint income tax return. 1080ez Meg and John complete Worksheets 1-5, 1-6, and 1-7. 1080ez Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. 1080ez They can divide the $4,459 any way they want. 1080ez They can enter an additional amount on either of their Forms W-4, or divide it between them. 1080ez They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4. 1080ez Both claim the same number of allowances as before. 1080ez How Do You Decrease Your Withholding? If your completed Worksheets 1-5 and 1-7 show that you may have more tax withheld than your projected tax liability for 2014, you may be able to decrease your withholding. 1080ez There are two ways to do this. 1080ez You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. 1080ez You can claim only the number of allowances to which you are entitled. 1080ez To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. 1080ez Increasing the number of allowances. 1080ez   Figure and increase the number of withholding allowances you can claim as follows. 1080ez On a new Form W-4, complete the Personal Allowances Worksheet. 1080ez If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. 1080ez If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. 1080ez If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. 1080ez If the number of allowances you can claim on Form W-4, is different from the number you already are claiming, give the newly completed Form W-4 to your employer. 1080ez Converting Credits to Withholding Allowances Table 1-2 , later, shows many of the tax credits you may be able to use to decrease your withholding. 1080ez The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. 1080ez Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. 1080ez Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. 1080ez Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. 1080ez If you take the child and dependent care credit into account on Worksheet 1-8, enter -0- on line F of the Personal Allowances Worksheet. 1080ez If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. 1080ez Example. 1080ez Brett and Alyssa Davis are married and expect to file a joint return for 2014. 1080ez Their expected taxable income from all sources is $68,000. 1080ez They expect to have $15,900 of itemized deductions. 1080ez Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. 1080ez The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. 1080ez Line 1, expected child and dependent care credit—$960. 1080ez Line 9, expected adoption credit—$1,500. 1080ez Line 10, total estimated tax credits—$2,460. 1080ez Line 11. 1080ez Their combined total income from all sources, $68,000, falls between $42,001 and $98,000 on the table for married filing jointly or qualifying widow(er). 1080ez The number to the right of this range is 6. 1080ez 7. 1080ez Line 12, multiply line 10 by line 11—$16,482. 1080ez Then the Davis' complete the Form W-4 worksheets. 1080ez Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H. 1080ez They take the result on line 12 of Worksheet 1-8, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets. 1080ez When Will Your New Form W-4 Go Into Effect? If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. 1080ez If the change is for next year, your new Form W-4 will not take effect until next year. 1080ez Retirees Returning to the Workforce When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). 1080ez However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. 1080ez You completed either form based on your projected income at that time. 1080ez Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income. 1080ez The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. 1080ez Start off with the Personal Allowances Worksheet. 1080ez Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet. 1080ez The third worksheet is the most important for this situation. 1080ez Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. 1080ez If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck. 1080ez Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. 1080ez It is your decision how to divide up your withholding allowances between these sources of income. 1080ez For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills. 1080ez ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. 1080ez There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances. 1080ez Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. 1080ez Contact your pension provider and your employer's payroll department. 1080ez And remember, this is not a final decision. 1080ez If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above. 1080ez You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. 1080ez You may need more tax withheld, or you may need less. 1080ez Table 1-2. 1080ez Tax Credits for 2014 For more information about the . 1080ez . 1080ez . 1080ez See . 1080ez . 1080ez . 1080ez Adoption credit Form 8839 instructions Child and dependent care expenses, credit for Publication 503, Child and Dependent Care Expenses Child tax credit (including the additional child tax credit) Instructions for Form 1040 or Form 1040A Earned income credit Publication 596, Earned Income Credit Education credits Publication 970, Tax Benefits for Education Elderly or the disabled, credit for the Publication 524, Credit for the Elderly or the Disabled Foreign tax credit (except any credit that applies to wages not subject to U. 1080ez S. 1080ez income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals General business credit Form 3800, General Business Credit Mortgage interest credit Publication 530, Tax Information for First-Time Homeowners Qualified electric vehicle passive activity credit Form 8834 Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year) Form 8801 instructions Retirement savings contributions credit (saver's credit) Publication 590, Individual Retirement Arrangements (IRAs) Tax credit bonds, credit to holders of Form 8912 instructions Completing Form W-4 and Worksheets When reading the following discussion, you may find it helpful to refer to Form W-4. 1080ez Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. 1080ez Everyone else must have tax withheld at the higher single rate. 1080ez Single. 1080ez   You must check the “Single” box if any of the following applies. 1080ez You are single. 1080ez If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. 1080ez You are married, but neither you nor your spouse is a citizen or resident of the United States. 1080ez You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. 1080ez For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. 1080ez Married. 1080ez   You qualify to check the “Married” box if any of the following applies. 1080ez You are married and neither you nor your spouse is a nonresident alien. 1080ez You are considered married for the whole year even if your spouse died during the year. 1080ez You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. 1080ez For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. 1080ez You expect to be able to file your return as a qualifying widow or widower. 1080ez You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. 1080ez However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. 1080ez For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information. 1080ez Married, but withhold at higher single rate. 1080ez   Some married people find that they do not have enough tax withheld at the married rate. 1080ez This can happen, for example, when both spouses work. 1080ez To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). 1080ez Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. 1080ez Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. 1080ez You will have the most tax withheld if you claim “0” allowances. 1080ez The number of allowances you can claim depends on the following factors. 1080ez How many exemptions you can take on your tax return. 1080ez Whether you have income from more than one job. 1080ez What deductions, adjustments to income, and credits you expect to have for the year. 1080ez Whether you will file as head of household. 1080ez If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. 1080ez Or, if married filing separately, whether or not your spouse also works. 1080ez Form W-4 worksheets. 1080ez    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. 1080ez The worksheets are for your own records. 1080ez Do not give them to your employer. 1080ez   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. 1080ez If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. 1080ez Complete separate sets of worksheets only if you and your spouse will file separate returns. 1080ez   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. 1080ez Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. 1080ez If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments. 1080ez   Complete all worksheets that apply to your situation. 1080ez The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. 1080ez Multiple jobs. 1080ez   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. 1080ez Then split your allowances between the Forms W-4 for each job. 1080ez You cannot claim the same allowances with more than one employer at the same time. 1080ez You can claim all your allowances with one employer and none with the other(s), or divide them any other way. 1080ez Married individuals. 1080ez   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. 1080ez Use only one set of worksheets. 1080ez You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. 1080ez   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. 1080ez Alternative method of figuring withholding allowances. 1080ez   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. 1080ez   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. 1080ez It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. 1080ez   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. 1080ez You still must give your employer a Form W-4 claiming your withholding allowances. 1080ez Employees who are not citizens or residents. 1080ez   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. 1080ez However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. 1080ez S. 1080ez national. 1080ez It also does not apply if your spouse is a U. 1080ez S. 1080ez citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. 1080ez Special rules apply to residents of South Korea and India. 1080ez For more information, see Withholding From Compensation in chapter 8 of Publication 519. 1080ez Personal Allowances Worksheet Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply. 1080ez Exemptions. 1080ez Only one job. 1080ez Head of household filing status. 1080ez Child and dependent care credit. 1080ez Child tax credit. 1080ez Exemptions (worksheet lines A, C, and D). 1080ez   You can claim one withholding allowance for each exemption you expect to claim on your tax return. 1080ez Self. 1080ez   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. 1080ez If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. 1080ez Spouse. 1080ez   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. 1080ez Do not claim this allowance if you and your spouse expect to file separate returns. 1080ez Dependents. 1080ez   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. 1080ez Only one job (worksheet line B). 1080ez    You can claim an additional withholding allowance if any of the following apply for 2014. 1080ez You are single and you have only one job at a time. 1080ez You are married, you have only one job at a time, and your spouse does not work. 1080ez Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. 1080ez If you qualify for this allowance, enter “1” on line B of the worksheet. 1080ez Head of household filing status (worksheet line E). 1080ez   Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: Was the main home for all of 2014 of your parent whom you can claim as a dependent, or You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent. 1080ez For more information, see Publication 501. 1080ez   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. 1080ez Reduction of personal allowances. 1080ez   For 2014, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status. 1080ez Personal Allowance Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1-1 to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet. 1080ez Worksheet 1-1. 1080ez Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. 1080ez Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. 1080ez   2. 1080ez Enter your expected AGI 2. 1080ez       3. 1080ez Enter $254,200 if single $305,050 if married filing jointly or qualifying widow(er) $152,525 if married filing separately $279,650 if head of household 3. 1080ez       4. 1080ez Subtract line 3 from line 2 4. 1080ez       5. 1080ez Divide line 4 by $125,000 ($62,500 if married filing separately). 1080ez Enter the result as a decimal 5. 1080ez   6. 1080ez Multiply line 1 by line 5. 1080ez If the result is not a whole number, increase it to the next higher whole number 6. 1080ez   7. 1080ez Subtract line 6 from line 1. 1080ez The total of the numbers you enter on A, C, and D of the Personal Allowances Worksheet can not be more than this amount 7. 1080ez     Child and dependent care credit (worksheet line F). 1080ez   Enter “1” on line F if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2014 return. 1080ez Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. 1080ez For more information, see Publication 503, Child and Dependent Care Expenses. 1080ez   Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. 1080ez Child tax credit (worksheet line G). 1080ez   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. 1080ez Subtract “1” from that amount if you have three to six eligible children. 1080ez Subtract “2” from that amount if you have seven or more eligible children. 1080ez   If your total income will be between $65,000 and $84,000 ($95,000 and $119,000 if married), enter “1” on line G for each eligible child. 1080ez   An eligible child is any child: Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Who will be under age 17 at the end of 2014, Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled, Who will not provide over half of his or her own support for 2014, Who will not file a joint return, unless the return is filed only as a claim for refund, Who will live with you for more than half of 2014, Who is a U. 1080ez S. 1080ez citizen, U. 1080ez S. 1080ez national, or U. 1080ez S. 1080ez resident alien, and Who will be claimed as a dependent on your return. 1080ez If you are a U. 1080ez S. 1080ez citizen or U. 1080ez S. 1080ez national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. 1080ez   Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2013 instructions for Form 1040 or 1040A, line 6c. 1080ez   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. 1080ez   Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. 1080ez Total personal allowances (worksheet line H). 1080ez    Add lines A through G and enter the total on line H. 1080ez If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4. 1080ez Deductions and Adjustments Worksheet Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. 1080ez Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. 1080ez Use the amount of each item you reasonably can expect to show on your return. 1080ez However, do not use more than: The amount shown for that item on your 2013 return (or your 2012 return if you have not yet filed your 2013 return), plus Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2013 or 2014. 1080ez Do not include any amount shown on your last tax return that has been disallowed by the IRS. 1080ez Example. 1080ez On June 30, 2013, you bought your first home. 1080ez On your 2013 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. 1080ez Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2014 return. 1080ez You can use $13,200 to figure the number of your withholding allowances for itemized deductions. 1080ez Not itemizing deductions. 1080ez   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet. 1080ez Itemized deductions (worksheet line 1). 1080ez   Enter your estimated total itemized deductions on line 1 of the worksheet. 1080ez   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. 1080ez You normally claim these deductions on Schedule A of Form 1040. 1080ez Medical and dental expenses that are more than 10% (7. 1080ez 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). 1080ez State and local income or property taxes. 1080ez Deductible home mortgage interest. 1080ez Investment interest up to net investment income. 1080ez Charitable contributions. 1080ez Casualty and theft losses that are more than $100 and 10% of your AGI. 1080ez Fully deductible miscellaneous itemized deductions, including: Impairment-related work expenses of persons with disabilities, Federal estate tax on income in respect of a decedent, Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it, Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death, Gambling losses up to the amount of gambling winnings reported on your return, and Casualty and theft losses from  income-producing property. 1080ez Other miscellaneous itemized deductions that are more than 2% of your AGI, including: Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies, Safe deposit box rental, Tax counsel and assistance, and Certain fees paid to an IRA trustee or custodian. 1080ez AGI. 1080ez   For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2014 minus any estimated adjustments to income (discussed later) that you include on line 4 of the Deductions and Adjustments Worksheet. 1080ez Phaseout of itemized deductions. 1080ez   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. 1080ez    Itemized Deduction Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1–2 to figure your reduction in itemized deductions. 1080ez Worksheet 1-2. 1080ez Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. 1080ez Enter the estimated total of your itemized deductions 1. 1080ez   2. 1080ez Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. 1080ez   3. 1080ez Is the amount on line 2 less than the amount on line 1? ❑ No. 1080ez Stop here. 1080ez Your deduction is not limited. 1080ez Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. 1080ez  ❑ Yes. 1080ez Subtract line 2 from line 1. 1080ez 3. 1080ez       4. 1080ez Multiply line 3 by 80% (. 1080ez 80) 4. 1080ez       5. 1080ez Enter your expected AGI 5. 1080ez       6. 1080ez Enter $305,050 If married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately 6. 1080ez   7. 1080ez Is the amount on line 6 less than the amount on line 5? ❑ No. 1080ez Stop here. 1080ez Your deduction is not limited. 1080ez Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. 1080ez  ❑ Yes. 1080ez Subtract line 6 from line 5. 1080ez 7. 1080ez       8. 1080ez Multiply line 7 by 3% (. 1080ez 03) 8. 1080ez       9. 1080ez Enter the smaller of line 4 or line 8 9. 1080ez     10. 1080ez Subtract line 9 from line 1. 1080ez Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. 1080ez     Adjustments to income (worksheet line 4). 1080ez   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. 1080ez   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. 1080ez These adjustments appear on page 1 of your Form 1040 or 1040A. 1080ez Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. 1080ez Net operating loss carryovers. 1080ez Certain business expenses of reservists, performing artists, and fee-based government officials. 1080ez Health savings account or medical savings account deduction. 1080ez Certain moving expenses. 1080ez Deduction for self-employment tax. 1080ez Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. 1080ez Self-employed health insurance deduction. 1080ez Penalty on early withdrawal of savings. 1080ez Alimony paid. 1080ez IRA deduction. 1080ez Student loan interest deduction. 1080ez Jury duty pay given to your employer. 1080ez Reforestation amortization and expenses. 1080ez Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. 1080ez Repayment of certain supplemental unemployment benefits. 1080ez Contributions to IRC 501(c)(18)(D) pension plans. 1080ez Contributions by certain chaplains to IRC 403(b) plans. 1080ez Attorney fees and court costs for certain unlawful discrimination claims. 1080ez Attorney fees and court costs for certain whistleblower awards. 1080ez Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). 1080ez Tax credits (worksheet line 5). 1080ez   Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). 1080ez But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. 1080ez   If you take the child and dependent care credit into account on line 5, do not use line F. 1080ez If you take the child tax credit into account on line 5, do not use line G. 1080ez   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. 1080ez See the individual tax form instructions for more details. 1080ez Foreign tax credit, except any credit that applies to wages not subject to U. 1080ez S. 1080ez income tax withholding because they are subject to income tax withholding by a foreign country. 1080ez See Publication 514, Foreign Tax Credit for Individuals. 1080ez Credit for the elderly or the disabled. 1080ez See Publication 524, Credit for the Elderly or the Disabled. 1080ez Education credits. 1080ez See Publication 970, Tax Benefits for Education. 1080ez Retirement savings contributions credit (saver's credit). 1080ez See Publication 590. 1080ez Mortgage interest credit. 1080ez See Publication 530, Tax Information for Homeowners. 1080ez Adoption credit. 1080ez See the Instructions for Form 8839. 1080ez Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. 1080ez See the Instructions for Form 8801. 1080ez General business credit. 1080ez See the Instructions for Form 3800. 1080ez Earned income credit. 1080ez See Publication 596. 1080ez Figuring line 5 entry. 1080ez   To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3 . 1080ez Example. 1080ez You are married and expect to file a joint return for 2014. 1080ez Your combined estimated wages are $68,000. 1080ez Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660). 1080ez In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. 1080ez 7. 1080ez Multiply your total estimated tax credits of $2,660 by 6. 1080ez 7. 1080ez Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. 1080ez Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet. 1080ez Nonwage income (worksheet line 6). 1080ez   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). 1080ez Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. 1080ez   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. 1080ez See Getting the Right Amount of Tax Withheld , later. 1080ez Net deductions and adjustments (worksheet line 8). 1080ez    If line 7 is less than $3,950, enter “0” on line 8. 1080ez If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. 1080ez Example. 1080ez If line 7 is $5,200, $5,200 ÷ $3,950 = 1. 1080ez 32. 1080ez Drop the fraction (. 1080ez 32) and enter “1” on line 8. 1080ez Two-Earners/Multiple Jobs Worksheet Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married). 1080ez Reducing your allowances (worksheet lines 1-3). 1080ez   On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). 1080ez Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). 1080ez Enter that number on line 2. 1080ez However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than “3. 1080ez ”    Table 1-3. 1080ez Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. 1080ez  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. 1080ez 0 $42,001 – 98,000 6. 1080ez 7 $98,001 – 180,000 4. 1080ez 0 $180,001 – 270,000 3. 1080ez 6 $270,001 – 440,000 3. 1080ez 0 $440,001 – 490,000. 1080ez . 1080ez . 1080ez . 1080ez 2. 1080ez 9 $490,001 and over 2. 1080ez 5 b. 1080ez  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. 1080ez 0 $19,001 – 47,000 6. 1080ez 7 $47,001 – 104,000 4. 1080ez 0 $104,001 – 205,000 3. 1080ez 6 $205,001 – 430,000 3. 1080ez 0 $430,001 and over 2. 1080ez 5 c. 1080ez  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. 1080ez 0 $30,001 – 66,000 6. 1080ez 7 $66,001 – 150,000 4. 1080ez 0 $150,001 – 235,000 3. 1080ez 6 $235,001 – 430,000 3. 1080ez 0 $430,001 – 460,000 2. 1080ez 9 $460,001 and over 2. 1080ez 5 d. 1080ez  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. 1080ez 0 $21,001 – 49,000 6. 1080ez 7 $49,001 – 90,000 4. 1080ez 0 $90,001 – 135,000 3. 1080ez 6 $135,001 – 220,000 3. 1080ez 0 $220,001 – 245,000 2. 1080ez 9 $245,001 and over 2. 1080ez 5   Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. 1080ez If line 1 is more than or equal to line 2, do not use the rest of the worksheet. 1080ez   If line 1 is less than line 2, enter “0” on Form W-4, line 5. 1080ez Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. 1080ez Other amounts owed. 1080ez   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. 1080ez The total is the additional withholding needed for the year. 1080ez Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. 1080ez You accurately complete all the Form W-4 worksheets that apply to you. 1080ez You give your employer a new Form W-4 when changes occur. 1080ez But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. 1080ez This is most likely to happen in the following situations. 1080ez You are married and both you and your spouse work. 1080ez You have more than one job at a time. 1080ez You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. 1080ez You will owe additional amounts with your return, such as self-employment tax. 1080ez Your withholding is based on obsolete Form W-4 information for a substantial part of the year. 1080ez Your earnings are more than $130,000 if you are single or $180,000 if you are married. 1080ez You work only part of the year. 1080ez You change the number of your withholding allowances during the year. 1080ez You are subject to Additional Medicare Tax or Net Investment Income Tax. 1080ez If you anticipate liability for Additional Medicare Tax or Net Investment Income Tax, you may request that your employer withhold an additional amount of income tax withholding on Form W-4. 1080ez Part-Year Method If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. 1080ez To be eligible for the part-year method, you must meet both of the following requirements. 1080ez You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. 1080ez You cannot use a fiscal year. 1080ez You must not expect to be employed for more than 245 days during the year. 1080ez To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. 1080ez If you are temporarily laid off for 30 days or less, count those days too. 1080ez If you are laid off for more than 30 days, do not count those days. 1080ez You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. 1080ez How to apply for the part-year method. 1080ez   You must ask your employer in writing to use this method. 1080ez The request must state all three of the following. 1080ez The date of your last day of work for any prior employer during the current calendar year. 1080ez That you do not expect to be employed more than 245 days during the current calendar year. 1080ez That you use the calendar year as your tax year. 1080ez Cumulative Wage Method If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. 1080ez You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. 1080ez You must ask your employer in writing to use this method. 1080ez To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. 1080ez ) since the beginning of the year. 1080ez Aids for Figuring Your Withholding IRS Withholding Calculator. 1080ez   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. 1080ez Go to www. 1080ez irs. 1080ez gov/Individuals/IRS-Withholding-Calculator. 1080ez It can help you determine the correct amount to be withheld any time during the year. 1080ez Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. 1080ez These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. 1080ez New Form W-4. 1080ez   When you start a new job, your employer should give you a Form W-4 to fill out. 1080ez Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. 1080ez   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. 1080ez The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. 1080ez No Form W-4. 1080ez   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. 1080ez Repaying withheld tax. 1080ez   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. 1080ez Your employer cannot repay any of the tax previously withheld. 1080ez Instead, claim the full amount withheld when you file your tax return. 1080ez   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. 1080ez Your employer can repay the amount that was withheld incorrectly. 1080ez If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. 1080ez IRS review of your withholding. 1080ez   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. 1080ez Your employer may be required to send a copy of the Form W-4 to the IRS. 1080ez There is a penalty for supplying false information on Form W-4. 1080ez See Penalties , later. 1080ez   If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a “lock-in letter”) to both you and your employer. 1080ez   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. 1080ez If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. 1080ez Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. 1080ez At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter. 1080ez   After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter. 1080ez   If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. 1080ez Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise. 1080ez   At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. 1080ez Your employer must then withhold tax based on this new Form W-4. 1080ez   Additional information is available at IRS. 1080ez gov. 1080ez Enter “withholding compliance questions” in the search box. 1080ez Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. 1080ez The exemption applies only to income tax, not to social security or Medicare tax. 1080ez You can claim exemption from withholding for 2014 only if both of the following situations apply. 1080ez For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. 1080ez For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. 1080ez Use Figure 1-A to help you decide whether you can claim exemption from withholding. 1080ez Do not use Figure 1-A if you: Are 65 or older, Are blind, Will itemize deductions on your 2014 return, Will claim an exemption for a dependent on your 2014 return, or Will claim any tax credits on your 2014 return. 1080ez These situations are discussed later. 1080ez Students. 1080ez   If you are a student, you are not automatically exempt. 1080ez If you work only part time or during the summer, you may qualify for exemption from withholding. 1080ez Example 1. 1080ez You are a high school student and expect to earn $2,500 from a summer job. 1080ez You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. 1080ez You worked last summer and had $375 federal income tax withheld from your pay. 1080ez The entire $375 was refunded when you filed your 2013 return. 1080ez Using Figure 1-A, you find that you can claim exemption from withholding. 1080ez Please click here for the text description of the image. 1080ez Figure 1-A: Exemption From Withholding on Form W-4 Example 2. 1080ez The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. 1080ez Using Figure 1-A, you find that you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,000. 1080ez    You may have to file a tax return, even if you are exempt from withholding. 1080ez See Publication 501 to see whether you must file a return. 1080ez    Age 65 or older or blind. 1080ez If you are 65 or older or blind, use Worksheet 1-3 or Worksheet 1-4, to help you decide whether you can claim exemption from withholding. 1080ez Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. 1080ez Instead, see Itemizing deductions or claiming exemptions or credits, next. 1080ez Itemizing deductions or claiming exemptions or credits. 1080ez   If you had no tax liability for 2013, and you will: Itemize deductions, Claim an exemption for a dependent, or Claim a tax credit, use the 2014 Estimated Tax Worksheet (also see chapter 2), to figure your 2014 expected tax liability. 1080ez You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. 1080ez Claiming exemption from withholding. 1080ez   To claim exemption, you must give your employer a Form W-4. 1080ez Do not complete lines 5 and 6. 1080ez Enter “Exempt” on line 7. 1080ez   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. 1080ez If you claim exemption in 2014 but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. 1080ez   Your claim of exempt status may be reviewed by the IRS. 1080ez See IRS review of your withholding , earlier. 1080ez An exemption is good for only 1 year. 1080ez   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. 1080ez Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. 1080ez The payer can figure withholding on supplemental wages using the same method used for your regular wages. 1080ez However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. 1080ez Expense allowances. 1080ez   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. 1080ez A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. 1080ez   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. 1080ez Accountable plan. 1080ez   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. 1080ez Your expenses must have a business connection. 1080ez That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. 1080ez You must adequately account to your employer for these expenses within a reasonable period of time. 1080ez You must return any excess reimbursement or allowance within a reasonable period of time. 1080ez    An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. 1080ez   The definition of reasonable period of time depends on the facts and circumstances of your situation. 1080ez However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. 1080ez You receive an advance within 30 days of the time you have an expense. 1080ez You adequately account for your expenses within 60 days after they were paid or incurred. 1080ez You return any excess reimbursement within 120 days after the expense was paid or incurred. 1080ez You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. 1080ez Nonaccountable plan. 1080ez   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. 1080ez For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. 1080ez Penalties You may have to pay a penalty of $500 if both of the following apply. 1080ez You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. 1080ez You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. 1080ez There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. 1080ez The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. 1080ez These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. 1080ez A simple error or an honest mistake will not result in one of these penalties. 1080ez For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. 1080ez However, see chapter 4 for information on the penalty for underpaying your tax. 1080ez Tips The tips you receive while working on your job are considered part of your pay. 1080ez You must include your tips on your tax return on the same line as your regular pay. 1080ez However, tax is not withheld directly from tip income, as it is from your regular pay. 1080ez Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. 1080ez Reporting tips to your employer. 1080ez   If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. 1080ez The report is due by the 10th day of the following month. 1080ez   If you have more than one job, make a separate report to each employer. 1080ez Report only the tips you received while working for that employer, and only if they total $20 or more for the month. 1080ez How employer figures amount to withhold. 1080ez   The tips you report to your employer are counted as part of your income for the month you report them. 1080ez Your employer can figure your withholding in either of two ways. 1080ez By withholding at the regular rate on the sum of your pay plus your reported tips. 1080ez By withholding at the regular rate on your pay plus a percentage of your reported tips. 1080ez Not enough pay to cover taxes. 1080ez   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. 1080ez   If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. 1080ez If not enough tax is withheld, you may have to pay estimated tax. 1080ez When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold. 1080ez Tips not reported to your employer. 1080ez   On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). 1080ez Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. 1080ez Allocated tips. 1080ez   If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2. 1080ez   Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. 1080ez Withholding is based only on your pay plus your reported tips. 1080ez Your employer should refund to you any incorrectly withheld tax. 1080ez More information. 1080ez   For more information on the reporting and withholding rules for tip income and on tip allocation, see Publi
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Contact My Local Office in Arizona

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Bullhead City 2580 Hwy. 95
Bullhead City,
AZ 86442

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

Services Provided

(877) 647-0788
Flagstaff 1633 S. Plaza Way
Flagstaff, AZ 86001

This Office is Temporarily Closed

 

(928) 214-3303
Flagstaff/remote Taxpayer
Assistance available
at United Way of
Northern Arizona
1515 E. Cedar Ave.
Suite D-1
Flagstaff, AZ 86004

Monday-Friday - 9:00 a.m.-4:00 p.m.

 

Virtual Services Provided

(928) 214-3303
Glendale 7350 W Camino
San Xavier
Glendale AZ 85308 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(623) 643-0399 
Lake Havasu City  60 Acoma Blvd.
Lake Havasu City,
AZ 86403
**Effective 3/2/2012 - This office will be closed until further notice** (928) 453-2670 
Lake Havasu City/remote
Taxpayer Assistance
available at Lake Havasu
City Interagency Council
1940 Mesquite Ave.
Lake Havasu City,
AZ 86403

Monday-Friday - 9:30 a.m.-4:00 p.m.

 

Virtual Services Provided

(623) 453-2670
Mesa 1818 E. Southern Ave.Mesa, AZ 85204

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(480) 503-7355 
Phoenix   4041 N Central Ave.
Phoenix, AZ 85012  

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(602) 636-9199 
Prescott/
remote Taxpayer Assistance
available at Prescott
Catholic Charities
434 W. Gurley St.
Prescott, AZ 86301

Monday-Friday - 8:30 a.m.-4:00 p.m.

 

 Virtual Services Provided

(928) 445-5922
Tucson  300 W. Congress
Tucson, AZ 85701 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(520) 205-5008 
Yuma 

2285 S. 4th Ave.
Yuma, AZ 85364 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(928) 726-9530 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call 602-636-9500 in the Phoenix metropolitan area or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
4041 N. Central Ave., MS 4040PHX
Phoenix, AZ 85012

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The 1080ez

1080ez 8. 1080ez   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. 1080ez Cash method. 1080ez Car and Truck ExpensesOffice in the home. 1080ez Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. 1080ez InsuranceHow to figure the deduction. 1080ez Interest Legal and Professional FeesTax preparation fees. 1080ez Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. 1080ez Taxi, commuter bus, and limousine. 1080ez Baggage and shipping. 1080ez Car or truck. 1080ez Meals and lodging. 1080ez Cleaning. 1080ez Telephone. 1080ez Tips. 1080ez More information. 1080ez Business Use of Your HomeExceptions to exclusive use. 1080ez Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. 1080ez These costs are known as business expenses. 1080ez These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. 1080ez To be deductible, a business expense must be both ordinary and necessary. 1080ez An ordinary expense is one that is common and accepted in your field of business. 1080ez A necessary expense is one that is helpful and appropriate for your business. 1080ez An expense does not have to be indispensable to be considered necessary. 1080ez For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. 1080ez If you have an expense that is partly for business and partly personal, separate the personal part from the business part. 1080ez The personal part is not deductible. 1080ez Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. 1080ez Bad Debts If someone owes you money you cannot collect, you have a bad debt. 1080ez There are two kinds of bad debts, business bad debts and nonbusiness bad debts. 1080ez A business bad debt is generally one that comes from operating your trade or business. 1080ez You may be able to deduct business bad debts as an expense on your business tax return. 1080ez Business bad debt. 1080ez   A business bad debt is a loss from the worthlessness of a debt that was either of the following. 1080ez Created or acquired in your business. 1080ez Closely related to your business when it became partly or totally worthless. 1080ez A debt is closely related to your business if your primary motive for incurring the debt is a business reason. 1080ez   Business bad debts are mainly the result of credit sales to customers. 1080ez They can also be the result of loans to suppliers, clients, employees, or distributors. 1080ez Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. 1080ez If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. 1080ez    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. 1080ez Accrual method. 1080ez   If you use an accrual method of accounting, you normally report income as you earn it. 1080ez You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. 1080ez Cash method. 1080ez   If you use the cash method of accounting, you normally report income when you receive payment. 1080ez You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. 1080ez More information. 1080ez   For more information about business bad debts, see chapter 10 in Publication 535. 1080ez Nonbusiness bad debts. 1080ez   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). 1080ez For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. 1080ez Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. 1080ez You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. 1080ez You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. 1080ez See Form 8936 and Form 8910 for more information. 1080ez Local transportation expenses. 1080ez   Local transportation expenses include the ordinary and necessary costs of all the following. 1080ez Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. 1080ez Tax home is defined later. 1080ez Visiting clients or customers. 1080ez Going to a business meeting away from your regular workplace. 1080ez Getting from your home to a temporary workplace when you have one or more regular places of work. 1080ez These temporary workplaces can be either within the area of your tax home or outside that area. 1080ez Local business transportation does not include expenses you have while traveling away from home overnight. 1080ez Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. 1080ez However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. 1080ez   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 1080ez It includes the entire city or general area in which your business or work is located. 1080ez Example. 1080ez You operate a printing business out of rented office space. 1080ez You use your van to deliver completed jobs to your customers. 1080ez You can deduct the cost of round-trip transportation between your customers and your print shop. 1080ez    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. 1080ez These costs are personal commuting expenses. 1080ez Office in the home. 1080ez   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. 1080ez For more information, see Business Use of Your Home, later. 1080ez Example. 1080ez You are a graphics designer. 1080ez You operate your business out of your home. 1080ez Your home qualifies as your principal place of business. 1080ez You occasionally have to drive to your clients to deliver your completed work. 1080ez You can deduct the cost of the round-trip transportation between your home and your clients. 1080ez Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. 1080ez Standard mileage rate. 1080ez Actual expenses. 1080ez Standard mileage rate. 1080ez   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. 1080ez For 2013, the standard mileage rate is 56. 1080ez 5 cents per mile. 1080ez    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. 1080ez Choosing the standard mileage rate. 1080ez   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. 1080ez In later years, you can choose to use either the standard mileage rate or actual expenses. 1080ez   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). 1080ez Standard mileage rate not allowed. 1080ez   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. 1080ez Parking fees and tolls. 1080ez   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 1080ez (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 1080ez ) Actual expenses. 1080ez   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. 1080ez    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. 1080ez   Actual car expenses include the costs of the following items. 1080ez Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. 1080ez You can divide your expenses based on the miles driven for each purpose. 1080ez Example. 1080ez You are the sole proprietor of a flower shop. 1080ez You drove your van 20,000 miles during the year. 1080ez 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). 1080ez You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. 1080ez More information. 1080ez   For more information about the rules for claiming car and truck expenses, see Publication 463. 1080ez Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. 1080ez The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 1080ez For details, see chapter 11 in Publication 535. 1080ez That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 1080ez Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. 1080ez You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. 1080ez This method of deducting the cost of business property is called depreciation. 1080ez The discussion here is brief. 1080ez You will find more information about depreciation in Publication 946. 1080ez What property can be depreciated?   You can depreciate property if it meets all the following requirements. 1080ez It must be property you own. 1080ez It must be used in business or held to produce income. 1080ez You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. 1080ez It must have a useful life that extends substantially beyond the year it is placed in service. 1080ez It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 1080ez You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. 1080ez It must not be excepted property. 1080ez This includes property placed in service and disposed of in the same year. 1080ez Repairs. 1080ez    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. 1080ez You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. 1080ez Depreciation method. 1080ez   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). 1080ez MACRS is discussed in detail in Publication 946. 1080ez Section 179 deduction. 1080ez   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. 1080ez This deduction is known as the “section 179 deduction. 1080ez ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). 1080ez See IRC 179(e). 1080ez   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. 1080ez The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). 1080ez Special rules apply to trucks and vans. 1080ez For more information, see Publication 946. 1080ez It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. 1080ez    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. 1080ez For more information, see the Instructions for Form 4562 or Publication 946. 1080ez Listed property. 1080ez   You must follow special rules and recordkeeping requirements when depreciating listed property. 1080ez Listed property is any of the following. 1080ez Most passenger automobiles. 1080ez Most other property used for transportation. 1080ez Any property of a type generally used for entertainment, recreation, or amusement. 1080ez Certain computers and related peripheral equipment. 1080ez   For more information about listed property, see Publication 946. 1080ez Form 4562. 1080ez   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. 1080ez Depreciation on property placed in service during the current tax year. 1080ez A section 179 deduction. 1080ez Depreciation on any listed property (regardless of when it was placed in service). 1080ez    If you have to use Form 4562, you must file Schedule C. 1080ez You cannot use Schedule C-EZ. 1080ez   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. 1080ez The pay may be in cash, property, or services. 1080ez To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. 1080ez In addition, the pay must meet both the following tests. 1080ez The pay must be reasonable. 1080ez The pay must be for services performed. 1080ez Chapter 2 in Publication 535 explains and defines these requirements. 1080ez You cannot deduct your own salary or any personal withdrawals you make from your business. 1080ez As a sole proprietor, you are not an employee of the business. 1080ez If you had employees during the year, you must use Schedule C. 1080ez You cannot use Schedule C-EZ. 1080ez Kinds of pay. 1080ez   Some of the ways you may provide pay to your employees are listed below. 1080ez For an explanation of each of these items, see chapter 2 in Publication 535. 1080ez Awards. 1080ez Bonuses. 1080ez Education expenses. 1080ez Fringe benefits (discussed later). 1080ez Loans or advances you do not expect the employee to repay if they are for personal services actually performed. 1080ez Property you transfer to an employee as payment for services. 1080ez Reimbursements for employee business expenses. 1080ez Sick pay. 1080ez Vacation pay. 1080ez Fringe benefits. 1080ez   A fringe benefit is a form of pay for the performance of services. 1080ez The following are examples of fringe benefits. 1080ez Benefits under qualified employee benefit programs. 1080ez Meals and lodging. 1080ez The use of a car. 1080ez Flights on airplanes. 1080ez Discounts on property or services. 1080ez Memberships in country clubs or other social clubs. 1080ez Tickets to entertainment or sporting events. 1080ez   Employee benefit programs include the following. 1080ez Accident and health plans. 1080ez Adoption assistance. 1080ez Cafeteria plans. 1080ez Dependent care assistance. 1080ez Educational assistance. 1080ez Group-term life insurance coverage. 1080ez Welfare benefit funds. 1080ez   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. 1080ez For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. 1080ez If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. 1080ez    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. 1080ez For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 1080ez Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. 1080ez Fire, theft, flood, or similar insurance. 1080ez Credit insurance that covers losses from business bad debts. 1080ez Group hospitalization and medical insurance for employees, including long-term care insurance. 1080ez Liability insurance. 1080ez Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 1080ez Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. 1080ez Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 1080ez Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 1080ez Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 1080ez If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. 1080ez If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 1080ez Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. 1080ez Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 1080ez Nondeductible premiums. 1080ez   You cannot deduct premiums on the following kinds of insurance. 1080ez Self-insurance reserve funds. 1080ez You cannot deduct amounts credited to a reserve set up for self-insurance. 1080ez This applies even if you cannot get business insurance coverage for certain business risks. 1080ez However, your actual losses may be deductible. 1080ez For more information, see Publication 547, Casualties, Disasters, and Thefts. 1080ez Loss of earnings. 1080ez You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. 1080ez However, see item (8) in the previous list. 1080ez Certain life insurance and annuities. 1080ez For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. 1080ez You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. 1080ez A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. 1080ez For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. 1080ez The disallowance applies without regard to whom the policy covers. 1080ez Insurance to secure a loan. 1080ez If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. 1080ez Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 1080ez In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 1080ez Self-employed health insurance deduction. 1080ez   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. 1080ez How to figure the deduction. 1080ez   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 1080ez However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. 1080ez You have more than one source of income subject to self-employment tax. 1080ez You file Form 2555 or Form 2555-EZ (relating to foreign earned income). 1080ez You are using amounts paid for qualified long-term care insurance to figure the deduction. 1080ez Prepayment. 1080ez   You cannot deduct expenses in advance, even if you pay them in advance. 1080ez This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 1080ez Example. 1080ez In 2013, you signed a 3-year insurance contract. 1080ez Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. 1080ez You can deduct in 2014 and 2015 the premium allocable to those years. 1080ez More information. 1080ez   For more information about deducting insurance, see chapter 6 in Publication 535. 1080ez Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. 1080ez Interest relates to your business if you use the proceeds of the loan for a business expense. 1080ez It does not matter what type of property secures the loan. 1080ez You can deduct interest on a debt only if you meet all of the following requirements. 1080ez You are legally liable for that debt. 1080ez Both you and the lender intend that the debt be repaid. 1080ez You and the lender have a true debtor-creditor relationship. 1080ez You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. 1080ez If a loan is part business and part personal, you must divide the interest between the personal part and the business part. 1080ez Example. 1080ez In 2013, you paid $600 interest on a car loan. 1080ez During 2013, you used the car 60% for business and 40% for personal purposes. 1080ez You are claiming actual expenses on the car. 1080ez You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. 1080ez The remaining interest of $240 is a nondeductible personal expense. 1080ez More information. 1080ez   For more information about deducting interest, see chapter 4 in Publication 535. 1080ez That chapter explains the following items. 1080ez Interest you can deduct. 1080ez Interest you cannot deduct. 1080ez How to allocate interest between personal and business use. 1080ez When to deduct interest. 1080ez The rules for a below-market interest rate loan. 1080ez (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 1080ez ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. 1080ez However, you usually cannot deduct legal fees you pay to acquire business assets. 1080ez Add them to the basis of the property. 1080ez If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. 1080ez The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. 1080ez For more information, see Publication 529, Miscellaneous Deductions. 1080ez Tax preparation fees. 1080ez   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. 1080ez You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 1080ez   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. 1080ez Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. 1080ez SEP (Simplified Employee Pension) plans. 1080ez SIMPLE (Savings Incentive Match Plan for Employees) plans. 1080ez Qualified plans (including Keogh or H. 1080ez R. 1080ez 10 plans). 1080ez SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. 1080ez You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. 1080ez If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. 1080ez You can also deduct trustees' fees if contributions to the plan do not cover them. 1080ez Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. 1080ez You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. 1080ez Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. 1080ez These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. 1080ez For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 1080ez Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. 1080ez Rent Expense Rent is any amount you pay for the use of property you do not own. 1080ez In general, you can deduct rent as a business expense only if the rent is for property you use in your business. 1080ez If you have or will receive equity in or title to the property, you cannot deduct the rent. 1080ez Unreasonable rent. 1080ez   You cannot take a rental deduction for unreasonable rents. 1080ez Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 1080ez Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 1080ez Rent is not unreasonable just because it is figured as a percentage of gross receipts. 1080ez   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 1080ez For a list of the other related persons, see section 267 of the Internal Revenue Code. 1080ez Rent on your home. 1080ez   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 1080ez You must meet the requirements for business use of your home. 1080ez For more information, see Business Use of Your Home , later. 1080ez Rent paid in advance. 1080ez   Generally, rent paid in your business is deductible in the year paid or accrued. 1080ez If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 1080ez You can deduct the rest of your payment only over the period to which it applies. 1080ez More information. 1080ez   For more information about rent, see chapter 3 in Publication 535. 1080ez Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. 1080ez Income taxes. 1080ez   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. 1080ez You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. 1080ez Do not deduct federal income tax. 1080ez Employment taxes. 1080ez   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. 1080ez Employment taxes are discussed briefly in chapter 1. 1080ez You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. 1080ez Deduct these payments as taxes. 1080ez Self-employment tax. 1080ez   You can deduct one-half of your self-employment tax on line 27 of Form 1040. 1080ez Self-employment tax is discussed in chapters 1 and 10. 1080ez Personal property tax. 1080ez   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. 1080ez   You can also deduct registration fees for the right to use property within a state or local area. 1080ez Example. 1080ez May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. 1080ez They had to pay $25 for their annual state license tags and $20 for their city registration sticker. 1080ez They also paid $235 in city personal property tax on the car, for a total of $280. 1080ez They are claiming their actual car expenses. 1080ez Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. 1080ez Real estate taxes. 1080ez   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. 1080ez Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. 1080ez The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. 1080ez   For more information about real estate taxes, see chapter 5 in Publication 535. 1080ez That chapter explains special rules for deducting the following items. 1080ez Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. 1080ez Real estate taxes when you buy or sell property during the year. 1080ez Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. 1080ez Sales tax. 1080ez   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. 1080ez If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. 1080ez If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. 1080ez If the property is depreciable, add the sales tax to the basis for depreciation. 1080ez For information on the basis of property, see Publication 551, Basis of Assets. 1080ez    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. 1080ez Do not include these taxes in gross receipts or sales. 1080ez Excise taxes. 1080ez   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. 1080ez Excise taxes are discussed briefly in chapter 1. 1080ez Fuel taxes. 1080ez   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. 1080ez Do not deduct these taxes as a separate item. 1080ez   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. 1080ez For more information, see Publication 510, Excise Taxes. 1080ez Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. 1080ez Table 8-1. 1080ez When Are Entertainment Expenses Deductible? (Note. 1080ez The following is a summary of the rules for deducting entertainment expenses. 1080ez For more details about these rules, see Publication 463. 1080ez ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. 1080ez Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 1080ez An ordinary expense is one that is common and accepted in your field of business, trade, or profession. 1080ez A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. 1080ez Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. 1080ez   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. 1080ez Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 1080ez You cannot deduct expenses that are lavish or extravagant under the circumstances. 1080ez You generally can deduct only 50% of your unreimbursed entertainment expenses. 1080ez Travel expenses. 1080ez   These are the ordinary and necessary expenses of traveling away from home for your business. 1080ez You are traveling away from home if both the following conditions are met. 1080ez Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. 1080ez You need to get sleep or rest to meet the demands of your work while away from home. 1080ez Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 1080ez It includes the entire city or general area in which your business is located. 1080ez See Publication 463 for more information. 1080ez   The following is a brief discussion of the expenses you can deduct. 1080ez Transportation. 1080ez   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. 1080ez Taxi, commuter bus, and limousine. 1080ez   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. 1080ez Baggage and shipping. 1080ez   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. 1080ez Car or truck. 1080ez   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. 1080ez You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. 1080ez If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 1080ez Meals and lodging. 1080ez   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 1080ez In most cases, you can deduct only 50% of your meal expenses. 1080ez Cleaning. 1080ez   You can deduct the costs of dry cleaning and laundry while on your business trip. 1080ez Telephone. 1080ez   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. 1080ez Tips. 1080ez   You can deduct the tips you pay for any expense in this list. 1080ez More information. 1080ez   For more information about travel expenses, see Publication 463. 1080ez Entertainment expenses. 1080ez   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. 1080ez In most cases, you can deduct only 50% of these expenses. 1080ez   The following are examples of entertainment expenses. 1080ez Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. 1080ez Providing meals, a hotel suite, or a car to business customers or their families. 1080ez To be deductible, the expenses must meet the rules listed in Table 8-1. 1080ez For details about these rules, see Publication 463. 1080ez Reimbursing your employees for expenses. 1080ez   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. 1080ez The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 1080ez For details, see chapter 11 in Publication 535. 1080ez That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 1080ez Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. 1080ez Even then, your deduction may be limited. 1080ez To qualify to claim expenses for business use of your home, you must meet the following tests. 1080ez Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. 1080ez Exclusive use. 1080ez   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. 1080ez The area used for business can be a room or other separately identifiable space. 1080ez The space does not need to be marked off by a permanent partition. 1080ez   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. 1080ez Example. 1080ez You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. 1080ez Your family also uses the den for recreation. 1080ez The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. 1080ez Exceptions to exclusive use. 1080ez   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. 1080ez For the storage of inventory or product samples. 1080ez As a daycare facility. 1080ez For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). 1080ez Regular use. 1080ez   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. 1080ez You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. 1080ez Principal place of business. 1080ez   You can have more than one business location, including your home, for a single trade or business. 1080ez To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. 1080ez To determine your principal place of business, you must consider all the facts and circumstances. 1080ez   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. 1080ez You use it exclusively and regularly for administrative or management activities of your business. 1080ez You have no other fixed location where you conduct substantial administrative or management activities of your business. 1080ez   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. 1080ez The relative importance of the activities performed at each location. 1080ez If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. 1080ez   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. 1080ez However, for other ways to qualify to deduct home office expenses, see Publication 587. 1080ez Deduction limit. 1080ez   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. 1080ez If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. 1080ez   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. 1080ez The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). 1080ez The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. 1080ez Do not include in (2) above your deduction for one-half of your self-employment tax. 1080ez   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. 1080ez New simplified method. 1080ez    The IRS now provides a simplified method to determine your expenses for business use of your home. 1080ez The simplified method is an alternative to calculating and substantiating actual expenses. 1080ez In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. 1080ez The area you use to figure your deduction is limited to 300 square feet. 1080ez For more information, see the Instructions for Schedule C. 1080ez More information. 1080ez   For more information on deducting expenses for the business use of your home, see Publication 587. 1080ez Other Expenses You Can Deduct You may also be able to deduct the following expenses. 1080ez See Publication 535 to find out whether you can deduct them. 1080ez Advertising. 1080ez Bank fees. 1080ez Donations to business organizations. 1080ez Education expenses. 1080ez Energy efficient commercial buildings deduction expenses. 1080ez Impairment-related expenses. 1080ez Interview expense allowances. 1080ez Licenses and regulatory fees. 1080ez Moving machinery. 1080ez Outplacement services. 1080ez Penalties and fines you pay for late performance or nonperformance of a contract. 1080ez Repairs that keep your property in a normal efficient operating condition. 1080ez Repayments of income. 1080ez Subscriptions to trade or professional publications. 1080ez Supplies and materials. 1080ez Utilities. 1080ez Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. 1080ez For more information, see Publication 535. 1080ez Bribes and kickbacks. 1080ez Charitable contributions. 1080ez Demolition expenses or losses. 1080ez Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. 1080ez Lobbying expenses. 1080ez Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. 1080ez Personal, living, and family expenses. 1080ez Political contributions. 1080ez Repairs that add to the value of your property or significantly increase its life. 1080ez Prev  Up  Next   Home   More Online Publications