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2011 Federal Tax Forms 1040

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2011 Federal Tax Forms 1040

2011 federal tax forms 1040 Publication 970 - Additional Material Table of Contents AppendicesAppendix A. 2011 federal tax forms 1040 Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. 2011 federal tax forms 1040 Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. 2011 federal tax forms 1040 Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. 2011 federal tax forms 1040 It is intended only as a guide. 2011 federal tax forms 1040 Look in this publication for more complete information. 2011 federal tax forms 1040   Appendix A. 2011 federal tax forms 1040 Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). 2011 federal tax forms 1040 Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. 2011 federal tax forms 1040 Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. 2011 federal tax forms 1040 Sean enrolled as a full-time graduate student in August 2013 at California State College. 2011 federal tax forms 1040 He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. 2011 federal tax forms 1040 His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. 2011 federal tax forms 1040 Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. 2011 federal tax forms 1040 In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. 2011 federal tax forms 1040 California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. 2011 federal tax forms 1040 California State College reports amounts billed in 2013 instead of amounts paid during 2013. 2011 federal tax forms 1040 In completing Form 8863, the Joneses use the amounts they paid. 2011 federal tax forms 1040 Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. 2011 federal tax forms 1040 Dave and Valerie figure their education credits by completing Form 8863. 2011 federal tax forms 1040 They begin Form 8863 on page 2 before completing Part I on page 1. 2011 federal tax forms 1040 Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. 2011 federal tax forms 1040 The Joneses decide to complete Part III for Carey first, as shown later. 2011 federal tax forms 1040 They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. 2011 federal tax forms 1040 The Joneses complete a separate Part III for their son Sean. 2011 federal tax forms 1040 They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. 2011 federal tax forms 1040 They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. 2011 federal tax forms 1040 Once they have completed Part III for each student, they figure their credits. 2011 federal tax forms 1040 The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. 2011 federal tax forms 1040 They enter the amount from line 8, $1,000, on line 66 of their Form 1040. 2011 federal tax forms 1040 The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). 2011 federal tax forms 1040 They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. 2011 federal tax forms 1040 They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. 2011 federal tax forms 1040 The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. 2011 federal tax forms 1040 The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. 2011 federal tax forms 1040 They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. 2011 federal tax forms 1040 This image is too large to be displayed in the current screen. 2011 federal tax forms 1040 Please click the link to view the image. 2011 federal tax forms 1040 Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 2011 federal tax forms 1040 Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. 2011 federal tax forms 1040 Less adjustments:     a. 2011 federal tax forms 1040 Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 2011 federal tax forms 1040 Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 2011 federal tax forms 1040 Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 2011 federal tax forms 1040 Total adjustments (add lines 2a, 2b, and 2c) 0 4. 2011 federal tax forms 1040 Adjusted qualified education expenses. 2011 federal tax forms 1040 Subtract line 3 from line 1. 2011 federal tax forms 1040 If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. 2011 federal tax forms 1040 Please click the link to view the image. 2011 federal tax forms 1040 Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 2011 federal tax forms 1040 Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. 2011 federal tax forms 1040 Less adjustments:     a. 2011 federal tax forms 1040 Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 2011 federal tax forms 1040 Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 2011 federal tax forms 1040 Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 2011 federal tax forms 1040 Total adjustments (add lines 2a, 2b, and 2c) 0 4. 2011 federal tax forms 1040 Adjusted qualified education expenses. 2011 federal tax forms 1040 Subtract line 3 from line 1. 2011 federal tax forms 1040 If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. 2011 federal tax forms 1040 Enter the amount from Form 8863, line 18 1. 2011 federal tax forms 1040 1,190 2. 2011 federal tax forms 1040 Enter the amount from Form 8863, line 9 2. 2011 federal tax forms 1040 1,500 3. 2011 federal tax forms 1040 Add lines 1 and 2 3. 2011 federal tax forms 1040 2,690 4. 2011 federal tax forms 1040 Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. 2011 federal tax forms 1040 1,000 5. 2011 federal tax forms 1040 Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. 2011 federal tax forms 1040 0 6. 2011 federal tax forms 1040 Subtract line 5 from line 4 6. 2011 federal tax forms 1040 1,000 7. 2011 federal tax forms 1040   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. 2011 federal tax forms 1040 1,000 This image is too large to be displayed in the current screen. 2011 federal tax forms 1040 Please click the link to view the image. 2011 federal tax forms 1040 Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. 2011 federal tax forms 1040 Please click the link to view the image. 2011 federal tax forms 1040 Carey Jones page 2 This image is too large to be displayed in the current screen. 2011 federal tax forms 1040 Please click the link to view the image. 2011 federal tax forms 1040 Filled-in Form 8863 Jones page 2 Appendix B. 2011 federal tax forms 1040 Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. 2011 federal tax forms 1040 See the text for definitions and details. 2011 federal tax forms 1040 Do not rely on this chart alone. 2011 federal tax forms 1040    Caution:You generally cannot claim more than one benefit for the same education expense. 2011 federal tax forms 1040   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. 2011 federal tax forms 1040    40% of the credit may be refundable (limited to $1,000 per student). 2011 federal tax forms 1040 Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. 2011 federal tax forms 1040 , that must be paid to the educational institution, etc. 2011 federal tax forms 1040 , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. 2011 federal tax forms 1040   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. 2011 federal tax forms 1040 Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. 2011 federal tax forms 1040 For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. 2011 federal tax forms 1040 For each term listed below that has more than one definition, the definition for each education benefit is listed. 2011 federal tax forms 1040 Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2011 federal tax forms 1040 If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2011 federal tax forms 1040 Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. 2011 federal tax forms 1040 They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. 2011 federal tax forms 1040 For information on a specific benefit, see the appropriate chapter in this publication. 2011 federal tax forms 1040 Candidate for a degree:   A student who meets either of the following requirements. 2011 federal tax forms 1040 Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. 2011 federal tax forms 1040 Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. 2011 federal tax forms 1040 Eligible educational institution:    American opportunity credit. 2011 federal tax forms 1040 Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2011 federal tax forms 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 federal tax forms 1040 Coverdell education savings account (ESA). 2011 federal tax forms 1040 Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2011 federal tax forms 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 federal tax forms 1040 Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. 2011 federal tax forms 1040 Education savings bond program. 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 IRA, early distributions from. 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 Lifetime learning credit. 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 Qualified tuition program (QTP). 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 Scholarships and fellowships. 2011 federal tax forms 1040 An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 2011 federal tax forms 1040 Student loan, cancellation of. 2011 federal tax forms 1040 Same as Scholarships and fellowships in this category. 2011 federal tax forms 1040 Student loan interest deduction. 2011 federal tax forms 1040 Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2011 federal tax forms 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 federal tax forms 1040 Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. 2011 federal tax forms 1040 Tuition and fees deduction. 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 Eligible student:    American opportunity credit. 2011 federal tax forms 1040 A student who meets all of the following requirements for the tax year for which the credit is being determined. 2011 federal tax forms 1040 Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. 2011 federal tax forms 1040 Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). 2011 federal tax forms 1040 For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. 2011 federal tax forms 1040 Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. 2011 federal tax forms 1040 Lifetime learning credit. 2011 federal tax forms 1040 A student who is enrolled in one or more courses at an eligible educational institution. 2011 federal tax forms 1040 Student loan interest deduction. 2011 federal tax forms 1040 A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. 2011 federal tax forms 1040 Tuition and fees deduction. 2011 federal tax forms 1040 A student who is enrolled in one or more courses at an eligible educational institution. 2011 federal tax forms 1040 Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. 2011 federal tax forms 1040 Modified adjusted gross income (MAGI):    American opportunity credit. 2011 federal tax forms 1040 Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2011 federal tax forms 1040 Coverdell education savings account (ESA). 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 Education savings bond program. 2011 federal tax forms 1040 Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. 2011 federal tax forms 1040 Lifetime learning credit. 2011 federal tax forms 1040 Same as American opportunity credit in this category. 2011 federal tax forms 1040 Student loan interest deduction. 2011 federal tax forms 1040 Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2011 federal tax forms 1040 Tuition and fees deduction. 2011 federal tax forms 1040 Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2011 federal tax forms 1040 Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. 2011 federal tax forms 1040 Qualified education expenses:   See pertinent chapter for specific items. 2011 federal tax forms 1040    American opportunity credit. 2011 federal tax forms 1040 Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. 2011 federal tax forms 1040 Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. 2011 federal tax forms 1040 Does not include expenses for room and board. 2011 federal tax forms 1040 Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. 2011 federal tax forms 1040 Coverdell education savings account (ESA). 2011 federal tax forms 1040 Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. 2011 federal tax forms 1040 Many specialized expenses included for K–12. 2011 federal tax forms 1040 Also includes expenses for special needs services and contribution to qualified tuition program (QTP). 2011 federal tax forms 1040 Education savings bond program. 2011 federal tax forms 1040 Tuition and fees required to enroll at or attend an eligible educational institution. 2011 federal tax forms 1040 Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). 2011 federal tax forms 1040 Does not include expenses for room and board. 2011 federal tax forms 1040 Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. 2011 federal tax forms 1040 IRA, early distributions from. 2011 federal tax forms 1040 Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 2011 federal tax forms 1040 Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. 2011 federal tax forms 1040 Lifetime learning credit. 2011 federal tax forms 1040 Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 2011 federal tax forms 1040 Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 2011 federal tax forms 1040 Does not include expenses for room and board. 2011 federal tax forms 1040 Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. 2011 federal tax forms 1040 Qualified tuition program (QTP). 2011 federal tax forms 1040 Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 2011 federal tax forms 1040 Includes expenses for special needs services and computer access. 2011 federal tax forms 1040 Scholarships and fellowships. 2011 federal tax forms 1040 Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 2011 federal tax forms 1040 Course-related items must be required of all students in the course of instruction. 2011 federal tax forms 1040 Student loan interest deduction. 2011 federal tax forms 1040 Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). 2011 federal tax forms 1040 Tuition and fees deduction. 2011 federal tax forms 1040 Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 2011 federal tax forms 1040 Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 2011 federal tax forms 1040 Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. 2011 federal tax forms 1040 To include as tax on your current year's return an amount allowed as a credit in a prior year. 2011 federal tax forms 1040 Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. 2011 federal tax forms 1040 Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. 2011 federal tax forms 1040 Prev  Up  Next   Home   More Online Publications
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The 2011 Federal Tax Forms 1040

2011 federal tax forms 1040 2. 2011 federal tax forms 1040   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. 2011 federal tax forms 1040 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. 2011 federal tax forms 1040 Deduction may depend on your type of business. 2011 federal tax forms 1040 Exception for events that benefit charitable organizations. 2011 federal tax forms 1040 Food and beverages in skybox seats. 2011 federal tax forms 1040 What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. 2011 federal tax forms 1040 You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. 2011 federal tax forms 1040 The rules and definitions are summarized in Table 2-1 . 2011 federal tax forms 1040 You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. 2011 federal tax forms 1040 Directly-related test. 2011 federal tax forms 1040 Associated test. 2011 federal tax forms 1040 Both of these tests are explained later. 2011 federal tax forms 1040 An ordinary expense is one that is common and accepted in your trade or business. 2011 federal tax forms 1040 A necessary expense is one that is helpful and appropriate for your business. 2011 federal tax forms 1040 An expense does not have to be required to be considered necessary. 2011 federal tax forms 1040 The amount you can deduct for entertainment expenses may be limited. 2011 federal tax forms 1040 Generally, you can deduct only 50% of your unreimbursed entertainment expenses. 2011 federal tax forms 1040 This limit is discussed later under 50% Limit. 2011 federal tax forms 1040 Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, 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 at some future time. 2011 federal tax forms 1040 Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. 2011 federal tax forms 1040 Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. 2011 federal tax forms 1040 See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. 2011 federal tax forms 1040 You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. 2011 federal tax forms 1040 It is not necessary to devote more time to business than to entertainment. 2011 federal tax forms 1040 However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. 2011 federal tax forms 1040 Table 2-1. 2011 federal tax forms 1040 When Are Entertainment Expenses Deductible? 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. 2011 federal tax forms 1040 Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 2011 federal tax forms 1040 An ordinary expense is one that is common and accepted in your trade or business. 2011 federal tax forms 1040 A necessary expense is one that is helpful and appropriate. 2011 federal tax forms 1040 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. 2011 federal tax forms 1040   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. 2011 federal tax forms 1040 Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 2011 federal tax forms 1040 You cannot deduct expenses that are lavish or extravagant under the circumstances. 2011 federal tax forms 1040 You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). 2011 federal tax forms 1040 You do not have to show that business income or other business benefit actually resulted from each entertainment expense. 2011 federal tax forms 1040 Clear business setting. 2011 federal tax forms 1040   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. 2011 federal tax forms 1040 The following situations are examples of entertainment in a clear business setting. 2011 federal tax forms 1040 Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. 2011 federal tax forms 1040 Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). 2011 federal tax forms 1040 Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. 2011 federal tax forms 1040 An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. 2011 federal tax forms 1040 Expenses not considered directly related. 2011 federal tax forms 1040   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. 2011 federal tax forms 1040 The following are examples of situations where there are substantial distractions. 2011 federal tax forms 1040 A meeting or discussion at a nightclub, theater, or sporting event. 2011 federal tax forms 1040 A meeting or discussion during what is essentially a social gathering, such as a cocktail party. 2011 federal tax forms 1040 A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. 2011 federal tax forms 1040 Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. 2011 federal tax forms 1040 To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). 2011 federal tax forms 1040 Associated with trade or business. 2011 federal tax forms 1040   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. 2011 federal tax forms 1040 The purpose may be to get new business or to encourage the continuation of an existing business relationship. 2011 federal tax forms 1040 Substantial business discussion. 2011 federal tax forms 1040   Whether a business discussion is substantial depends on the facts of each case. 2011 federal tax forms 1040 A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. 2011 federal tax forms 1040   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. 2011 federal tax forms 1040 It is not necessary that you devote more time to business than to entertainment. 2011 federal tax forms 1040 You do not have to discuss business during the meal or entertainment. 2011 federal tax forms 1040 Meetings at conventions. 2011 federal tax forms 1040   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. 2011 federal tax forms 1040 However, your reason for attending the convention or meeting must be to further your trade or business. 2011 federal tax forms 1040 The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. 2011 federal tax forms 1040 Directly before or after business discussion. 2011 federal tax forms 1040   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. 2011 federal tax forms 1040   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. 2011 federal tax forms 1040 Among the facts to consider are the place, date, and duration of the business discussion. 2011 federal tax forms 1040 If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. 2011 federal tax forms 1040 Example. 2011 federal tax forms 1040 A group of business associates comes from out of town to your place of business to hold a substantial business discussion. 2011 federal tax forms 1040 If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. 2011 federal tax forms 1040 The expense meets the associated test. 2011 federal tax forms 1040 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. 2011 federal tax forms 1040 (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. 2011 federal tax forms 1040 See Individuals subject to “hours of service” limits , later. 2011 federal tax forms 1040 ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. 2011 federal tax forms 1040 Figure A summarizes the general rules explained in this section. 2011 federal tax forms 1040 The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. 2011 federal tax forms 1040 Included expenses. 2011 federal tax forms 1040   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. 2011 federal tax forms 1040 However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. 2011 federal tax forms 1040 Figure A. 2011 federal tax forms 1040 Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. 2011 federal tax forms 1040 See Exceptions to the 50% Limit . 2011 federal tax forms 1040 Please click here for the text description of the image. 2011 federal tax forms 1040 Figure A. 2011 federal tax forms 1040 Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. 2011 federal tax forms 1040   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. 2011 federal tax forms 1040   The 50% limit also applies to certain meal and entertainment expenses that are not business related. 2011 federal tax forms 1040 It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. 2011 federal tax forms 1040 It also applies to the cost of meals included in deductible educational expenses. 2011 federal tax forms 1040 When to apply the 50% limit. 2011 federal tax forms 1040   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. 2011 federal tax forms 1040 You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. 2011 federal tax forms 1040 Example 1. 2011 federal tax forms 1040 You spend $200 for a business-related meal. 2011 federal tax forms 1040 If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. 2011 federal tax forms 1040 Your deduction cannot be more than $45 (50% × $90). 2011 federal tax forms 1040 Example 2. 2011 federal tax forms 1040 You purchase two tickets to a concert and give them to a client. 2011 federal tax forms 1040 You purchased the tickets through a ticket agent. 2011 federal tax forms 1040 You paid $200 for the two tickets, which had a face value of $80 each ($160 total). 2011 federal tax forms 1040 Your deduction cannot be more than $80 (50% × $160). 2011 federal tax forms 1040 Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. 2011 federal tax forms 1040 Figure A can help you determine if the 50% limit applies to you. 2011 federal tax forms 1040 Expenses not subject to 50% limit. 2011 federal tax forms 1040   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. 2011 federal tax forms 1040 1 - Employee's reimbursed expenses. 2011 federal tax forms 1040   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. 2011 federal tax forms 1040 Accountable plans are discussed in chapter 6. 2011 federal tax forms 1040 2 - Self-employed. 2011 federal tax forms 1040   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. 2011 federal tax forms 1040 You have these expenses as an independent contractor. 2011 federal tax forms 1040 Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. 2011 federal tax forms 1040 You provide adequate records of these expenses to your customer or client. 2011 federal tax forms 1040 (See chapter 5 . 2011 federal tax forms 1040 )   In this case, your client or customer is subject to the 50% limit on the expenses. 2011 federal tax forms 1040 Example. 2011 federal tax forms 1040 You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. 2011 federal tax forms 1040 You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. 2011 federal tax forms 1040 If the client can deduct the expenses, the client is subject to the 50% limit. 2011 federal tax forms 1040 If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. 2011 federal tax forms 1040 3 - Advertising expenses. 2011 federal tax forms 1040   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. 2011 federal tax forms 1040 For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. 2011 federal tax forms 1040 4 - Sale of meals or entertainment. 2011 federal tax forms 1040   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. 2011 federal tax forms 1040 For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. 2011 federal tax forms 1040 5 - Charitable sports event. 2011 federal tax forms 1040   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. 2011 federal tax forms 1040 For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. 2011 federal tax forms 1040 Individuals subject to “hours of service” limits. 2011 federal tax forms 1040   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. 2011 federal tax forms 1040 The percentage is 80%. 2011 federal tax forms 1040   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. 2011 federal tax forms 1040 Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. 2011 federal tax forms 1040 Interstate truck operators and bus drivers who are under Department of Transportation regulations. 2011 federal tax forms 1040 Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. 2011 federal tax forms 1040 Certain merchant mariners who are under Coast Guard regulations. 2011 federal tax forms 1040 What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. 2011 federal tax forms 1040 Entertainment. 2011 federal tax forms 1040   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. 2011 federal tax forms 1040 Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. 2011 federal tax forms 1040   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. 2011 federal tax forms 1040 A meal as a form of entertainment. 2011 federal tax forms 1040   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. 2011 federal tax forms 1040 A meal expense includes the cost of food, beverages, taxes, and tips for the meal. 2011 federal tax forms 1040 To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. 2011 federal tax forms 1040    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. 2011 federal tax forms 1040    Meals sold in the normal course of your business are not considered entertainment. 2011 federal tax forms 1040 Deduction may depend on your type of business. 2011 federal tax forms 1040   Your kind of business may determine if a particular activity is considered entertainment. 2011 federal tax forms 1040 For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. 2011 federal tax forms 1040 This is because fashion shows are typical in your business. 2011 federal tax forms 1040 But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. 2011 federal tax forms 1040 Separating costs. 2011 federal tax forms 1040   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. 2011 federal tax forms 1040 You must have a reasonable basis for making this allocation. 2011 federal tax forms 1040 For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. 2011 federal tax forms 1040 Taking turns paying for meals or entertainment. 2011 federal tax forms 1040   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. 2011 federal tax forms 1040 Lavish or extravagant expenses. 2011 federal tax forms 1040   You cannot deduct expenses for entertainment that are lavish or extravagant. 2011 federal tax forms 1040 An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. 2011 federal tax forms 1040 Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 2011 federal tax forms 1040 Allocating between business and nonbusiness. 2011 federal tax forms 1040   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. 2011 federal tax forms 1040 You can deduct only the business part. 2011 federal tax forms 1040 If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. 2011 federal tax forms 1040 Example. 2011 federal tax forms 1040 You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. 2011 federal tax forms 1040 Only 4/11 of the expense qualifies as a business entertainment expense. 2011 federal tax forms 1040 You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. 2011 federal tax forms 1040 Trade association meetings. 2011 federal tax forms 1040   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. 2011 federal tax forms 1040 These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. 2011 federal tax forms 1040 Entertainment tickets. 2011 federal tax forms 1040   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. 2011 federal tax forms 1040 For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. 2011 federal tax forms 1040 Exception for events that benefit charitable organizations. 2011 federal tax forms 1040   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. 2011 federal tax forms 1040 You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. 2011 federal tax forms 1040 The event's main purpose is to benefit a qualified charitable organization. 2011 federal tax forms 1040 The entire net proceeds go to the charity. 2011 federal tax forms 1040 The event uses volunteers to perform substantially all the event's work. 2011 federal tax forms 1040    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. 2011 federal tax forms 1040 Example 1. 2011 federal tax forms 1040 You purchase tickets to a golf tournament organized by the local volunteer fire company. 2011 federal tax forms 1040 All net proceeds will be used to buy new fire equipment. 2011 federal tax forms 1040 The volunteers will run the tournament. 2011 federal tax forms 1040 You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. 2011 federal tax forms 1040 Example 2. 2011 federal tax forms 1040 You purchase tickets to a college football game through a ticket broker. 2011 federal tax forms 1040 After having a business discussion, you take a client to the game. 2011 federal tax forms 1040 Net proceeds from the game go to colleges that qualify as charitable organizations. 2011 federal tax forms 1040 However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. 2011 federal tax forms 1040 Skyboxes and other private luxury boxes. 2011 federal tax forms 1040   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. 2011 federal tax forms 1040   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. 2011 federal tax forms 1040 For example, renting a skybox for a series of playoff games is considered renting it for more than one event. 2011 federal tax forms 1040 All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. 2011 federal tax forms 1040   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. 2011 federal tax forms 1040 Example. 2011 federal tax forms 1040 You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. 2011 federal tax forms 1040 The cost of regular nonluxury box seats at each event is $30 a seat. 2011 federal tax forms 1040 You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). 2011 federal tax forms 1040 Food and beverages in skybox seats. 2011 federal tax forms 1040   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. 2011 federal tax forms 1040 The amounts separately stated for food and beverages must be reasonable. 2011 federal tax forms 1040 You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. 2011 federal tax forms 1040 What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. 2011 federal tax forms 1040 Club dues and membership fees. 2011 federal tax forms 1040   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. 2011 federal tax forms 1040 This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. 2011 federal tax forms 1040   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. 2011 federal tax forms 1040 You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 2011 federal tax forms 1040 Entertainment facilities. 2011 federal tax forms 1040   Generally, you cannot deduct any expense for the use of an entertainment facility. 2011 federal tax forms 1040 This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. 2011 federal tax forms 1040   An entertainment facility is any property you own, rent, or use for entertainment. 2011 federal tax forms 1040 Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. 2011 federal tax forms 1040 Out-of-pocket expenses. 2011 federal tax forms 1040   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. 2011 federal tax forms 1040 These are not expenses for the use of an entertainment facility. 2011 federal tax forms 1040 However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. 2011 federal tax forms 1040 Expenses for spouses. 2011 federal tax forms 1040   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. 2011 federal tax forms 1040 However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. 2011 federal tax forms 1040 Example. 2011 federal tax forms 1040 You entertain a customer. 2011 federal tax forms 1040 The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. 2011 federal tax forms 1040 The customer's spouse joins you because it is impractical to entertain the customer without the spouse. 2011 federal tax forms 1040 You can deduct the cost of entertaining the customer's spouse. 2011 federal tax forms 1040 If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. 2011 federal tax forms 1040 Gift or entertainment. 2011 federal tax forms 1040   Any item that might be considered either a gift or entertainment generally will be considered entertainment. 2011 federal tax forms 1040 However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. 2011 federal tax forms 1040   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. 2011 federal tax forms 1040 You can treat the tickets as either a gift or entertainment, whichever is to your advantage. 2011 federal tax forms 1040   You can change your treatment of the tickets at a later date by filing an amended return. 2011 federal tax forms 1040 Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. 2011 federal tax forms 1040   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. 2011 federal tax forms 1040 You cannot choose, in this case, to treat the tickets as a gift. 2011 federal tax forms 1040 Prev  Up  Next   Home   More Online Publications