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E File State Taxes Only

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E File State Taxes Only

E file state taxes only 18. E file state taxes only   Alimony Table of Contents IntroductionSpouse or former spouse. E file state taxes only Divorce or separation instrument. E file state taxes only Useful Items - You may want to see: General RulesMortgage payments. E file state taxes only Taxes and insurance. E file state taxes only Other payments to a third party. E file state taxes only Instruments Executed After 1984Payments to a third party. E file state taxes only Exception. E file state taxes only Substitute payments. E file state taxes only Specifically designated as child support. E file state taxes only Contingency relating to your child. E file state taxes only Clearly associated with a contingency. E file state taxes only How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule Introduction This chapter discusses the rules that apply if you pay or receive alimony. E file state taxes only It covers the following topics. E file state taxes only What payments are alimony. E file state taxes only What payments are not alimony, such as child support. E file state taxes only How to deduct alimony you paid. E file state taxes only How to report alimony you received as income. E file state taxes only Whether you must recapture the tax benefits of alimony. E file state taxes only Recapture means adding back in your income all or part of a deduction you took in a prior year. E file state taxes only Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. E file state taxes only It does not include voluntary payments that are not made under a divorce or separation instrument. E file state taxes only Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. E file state taxes only Although this chapter is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. E file state taxes only To be alimony, a payment must meet certain requirements. E file state taxes only Different requirements generally apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. E file state taxes only This chapter discusses the rules for payments under instruments executed after 1984. E file state taxes only If you need the rules for payments under pre-1985 instruments, get and keep a copy of the 2004 version of Publication 504. E file state taxes only That was the last year the information on pre-1985 instruments was included in Publication 504. E file state taxes only Use Table 18-1 in this chapter as a guide to determine whether certain payments are considered alimony. E file state taxes only Definitions. E file state taxes only   The following definitions apply throughout this chapter. E file state taxes only Spouse or former spouse. E file state taxes only   Unless otherwise stated, the term “spouse” includes former spouse. E file state taxes only Divorce or separation instrument. E file state taxes only   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. E file state taxes only This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). E file state taxes only Useful Items - You may want to see: Publication 504 Divorced or Separated Individuals General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. E file state taxes only Payments not alimony. E file state taxes only   Not all payments under a divorce or separation instrument are alimony. E file state taxes only Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained under Community Property in Publication 504, Payments to keep up the payer's property, or Use of the payer's property. E file state taxes only Payments to a third party. E file state taxes only   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. E file state taxes only These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. E file state taxes only ), taxes, tuition, etc. E file state taxes only The payments are treated as received by your spouse and then paid to the third party. E file state taxes only Life insurance premiums. E file state taxes only   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. E file state taxes only Payments for jointly-owned home. E file state taxes only   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse, some of your payments may be alimony. E file state taxes only Mortgage payments. E file state taxes only   If you must pay all the mortgage payments (principal and interest) on a jointly-owned home, and they otherwise qualify as alimony, you can deduct one-half of the total payments as alimony. E file state taxes only If you itemize deductions and the home is a qualified home, you can claim one-half of the interest in figuring your deductible interest. E file state taxes only Your spouse must report one-half of the payments as alimony received. E file state taxes only If your spouse itemizes deductions and the home is a qualified home, he or she can claim one-half of the interest on the mortgage in figuring deductible interest. E file state taxes only Taxes and insurance. E file state taxes only   If you must pay all the real estate taxes or insurance on a home held as tenants in common, you can deduct one-half of these payments as alimony. E file state taxes only Your spouse must report one-half of these payments as alimony received. E file state taxes only If you and your spouse itemize deductions, you can each claim one-half of the real estate taxes and none of the home insurance. E file state taxes only    If your home is held as tenants by the entirety or joint tenants, none of your payments for taxes or insurance are alimony. E file state taxes only But if you itemize deductions, you can claim all of the real estate taxes and none of the home insurance. E file state taxes only Other payments to a third party. E file state taxes only   If you made other third-party payments, see Publication 504 to see whether any part of the payments qualifies as alimony. E file state taxes only Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. E file state taxes only Exception for instruments executed before 1985. E file state taxes only   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. E file state taxes only A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. E file state taxes only A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. E file state taxes only   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, get the 2004 version of Publication 504 at www. E file state taxes only irs. E file state taxes only gov/pub504. E file state taxes only Example 1. E file state taxes only In November 1984, you and your former spouse executed a written separation agreement. E file state taxes only In February 1985, a decree of divorce was substituted for the written separation agreement. E file state taxes only The decree of divorce did not change the terms for the alimony you pay your former spouse. E file state taxes only The decree of divorce is treated as executed before 1985. E file state taxes only Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. E file state taxes only Example 2. E file state taxes only Assume the same facts as in Example 1 except that the decree of divorce changed the amount of the alimony. E file state taxes only In this example, the decree of divorce is not treated as executed before 1985. E file state taxes only The alimony payments are subject to the rules for payments under instruments executed after 1984. E file state taxes only Alimony requirements. E file state taxes only   A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. E file state taxes only The payment is in cash. E file state taxes only The instrument does not designate the payment as not alimony. E file state taxes only Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. E file state taxes only There is no liability to make any payment (in cash or property) after the death of the recipient spouse. E file state taxes only The payment is not treated as child support. E file state taxes only Each of these requirements is discussed below. E file state taxes only Cash payment requirement. E file state taxes only   Only cash payments, including checks and money orders, qualify as alimony. E file state taxes only The following do not qualify as alimony. E file state taxes only Transfers of services or property (including a debt instrument of a third party or an annuity contract). E file state taxes only Execution of a debt instrument by the payer. E file state taxes only The use of the payer's property. E file state taxes only Payments to a third party. E file state taxes only   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. E file state taxes only See Payments to a third party under General Rules, earlier. E file state taxes only   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. E file state taxes only The payments are in lieu of payments of alimony directly to your spouse. E file state taxes only The written request states that both spouses intend the payments to be treated as alimony. E file state taxes only You receive the written request from your spouse before you file your return for the year you made the payments. E file state taxes only Payments designated as not alimony. E file state taxes only   You and your spouse can designate that otherwise qualifying payments are not alimony. E file state taxes only You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. E file state taxes only For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). E file state taxes only If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. E file state taxes only   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. E file state taxes only The copy must be attached each year the designation applies. E file state taxes only Spouses cannot be members of the same household. E file state taxes only    Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. E file state taxes only A home you formerly shared is considered one household, even if you physically separate yourselves in the home. E file state taxes only   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. E file state taxes only Exception. E file state taxes only   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. E file state taxes only Table 18-1. E file state taxes only Alimony Requirements (Instruments Executed After 1984) Payments ARE alimony if all of the following are true: Payments are NOT alimony if any of the following are true: Payments are required by a divorce or separation instrument. E file state taxes only Payments are not required by a divorce or separation instrument. E file state taxes only Payer and recipient spouse do not file a joint return with each other. E file state taxes only Payer and recipient spouse file a joint return with each other. E file state taxes only Payment is in cash (including checks or money orders). E file state taxes only Payment is: Not in cash, A noncash property settlement, Spouse's part of community income, or To keep up the payer's property. E file state taxes only Payment is not designated in the instrument as not alimony. E file state taxes only Payment is designated in the instrument as not alimony. E file state taxes only Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. E file state taxes only Spouses legally separated under a decree of divorce or separate maintenance are members of the same household. E file state taxes only Payments are not required after death of the recipient spouse. E file state taxes only Payments are required after death of the recipient spouse. E file state taxes only Payment is not treated as child support. E file state taxes only Payment is treated as child support. E file state taxes only These payments are deductible by the payer and includible in income by the recipient. E file state taxes only These payments are neither deductible by the payer nor includible in income by the recipient. E file state taxes only Liability for payments after death of recipient spouse. E file state taxes only   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony, whether made before or after the death. E file state taxes only If all of the payments would continue, then none of the payments made before or after the death are alimony. E file state taxes only   The divorce or separation instrument does not have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law. E file state taxes only Example. E file state taxes only You must pay your former spouse $10,000 in cash each year for 10 years. E file state taxes only Your divorce decree states that the payments will end upon your former spouse's death. E file state taxes only You must also pay your former spouse or your former spouse's estate $20,000 in cash each year for 10 years. E file state taxes only The death of your spouse would not terminate these payments under state law. E file state taxes only The $10,000 annual payments may qualify as alimony. E file state taxes only The $20,000 annual payments that do not end upon your former spouse's death are not alimony. E file state taxes only Substitute payments. E file state taxes only   If you must make any payments in cash or property after your spouse's death as a substitute for continuing otherwise qualifying payments before the death, the otherwise qualifying payments are not alimony. E file state taxes only To the extent that your payments begin, accelerate, or increase because of the death of your spouse, otherwise qualifying payments you made may be treated as payments that were not alimony. E file state taxes only Whether or not such payments will be treated as not alimony depends on all the facts and circumstances. E file state taxes only Example 1. E file state taxes only Under your divorce decree, you must pay your former spouse $30,000 annually. E file state taxes only The payments will stop at the end of 6 years or upon your former spouse's death, if earlier. E file state taxes only Your former spouse has custody of your minor children. E file state taxes only The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 annually to a trust until the youngest child reaches the age of majority. E file state taxes only The trust income and corpus (principal) are to be used for your children's benefit. E file state taxes only These facts indicate that the payments to be made after your former spouse's death are a substitute for $10,000 of the $30,000 annual payments. E file state taxes only Of each of the $30,000 annual payments, $10,000 is not alimony. E file state taxes only Example 2. E file state taxes only Under your divorce decree, you must pay your former spouse $30,000 annually. E file state taxes only The payments will stop at the end of 15 years or upon your former spouse's death, if earlier. E file state taxes only The decree provides that if your former spouse dies before the end of the 15-year period, you must pay the estate the difference between $450,000 ($30,000 × 15) and the total amount paid up to that time. E file state taxes only For example, if your spouse dies at the end of the tenth year, you must pay the estate $150,000 ($450,000 − $300,000). E file state taxes only These facts indicate that the lump-sum payment to be made after your former spouse's death is a substitute for the full amount of the $30,000 annual payments. E file state taxes only None of the annual payments are alimony. E file state taxes only The result would be the same if the payment required at death were to be discounted by an appropriate interest factor to account for the prepayment. E file state taxes only Child support. E file state taxes only   A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument is not alimony. E file state taxes only The amount of child support may vary over time. E file state taxes only Child support payments are not deductible by the payer and are not taxable to the recipient. E file state taxes only Specifically designated as child support. E file state taxes only   A payment will be treated as specifically designated as child support to the extent that the payment is reduced either: On the happening of a contingency relating to your child, or At a time that can be clearly associated with the contingency. E file state taxes only A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support. E file state taxes only Contingency relating to your child. E file state taxes only   A contingency relates to your child if it depends on any event relating to that child. E file state taxes only It does not matter whether the event is certain or likely to occur. E file state taxes only Events relating to your child include the child's: Becoming employed, Dying, Leaving the household, Leaving school, Marrying, or Reaching a specified age or income level. E file state taxes only Clearly associated with a contingency. E file state taxes only   Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations. E file state taxes only The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority. E file state taxes only The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. E file state taxes only This certain age must be the same for each child, but need not be a whole number of years. E file state taxes only In all other situations, reductions in payments are not treated as clearly associated with the happening of a contingency relating to your child. E file state taxes only   Either you or the IRS can overcome the presumption in the two situations above. E file state taxes only This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. E file state taxes only For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony. E file state taxes only How To Deduct Alimony Paid You can deduct alimony you paid, whether or not you itemize deductions on your return. E file state taxes only You must file Form 1040. E file state taxes only You cannot use Form 1040A or Form 1040EZ. E file state taxes only Enter the amount of alimony you paid on Form 1040, line 31a. E file state taxes only In the space provided on line 31b, enter your spouse's social security number (SSN) or individual taxpayer identification number (ITIN). E file state taxes only If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. E file state taxes only Show the SSN or ITIN and amount paid to each other recipient on an attached statement. E file state taxes only Enter your total payments on line 31a. E file state taxes only You must provide your spouse's SSN or ITIN. E file state taxes only If you do not, you may have to pay a $50 penalty and your deduction may be disallowed. E file state taxes only For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. E file state taxes only How To Report Alimony Received Report alimony you received as income on Form 1040, line 11. E file state taxes only You cannot use Form 1040A or Form 1040EZ. E file state taxes only You must give the person who paid the alimony your SSN or ITIN. E file state taxes only If you do not, you may have to pay a $50 penalty. E file state taxes only Recapture Rule If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. E file state taxes only If you are subject to this rule, you have to include in income in the third year part of the alimony payments you previously deducted. E file state taxes only Your spouse can deduct in the third year part of the alimony payments he or she previously included in income. E file state taxes only The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. E file state taxes only Do not include any time in which payments were being made under temporary support orders. E file state taxes only The second and third years are the next 2 calendar years, whether or not payments are made during those years. E file state taxes only The reasons for a reduction or end of alimony payments that can require a recapture include: A change in your divorce or separation instrument, A failure to make timely payments, A reduction in your ability to provide support, or A reduction in your spouse's support needs. E file state taxes only When to apply the recapture rule. E file state taxes only   You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year. E file state taxes only   When you figure a decrease in alimony, do not include the following amounts. E file state taxes only Payments made under a temporary support order. E file state taxes only Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment. E file state taxes only Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year. E file state taxes only Figuring the recapture. E file state taxes only   You can use Worksheet 1 in Publication 504 to figure recaptured alimony. E file state taxes only Including the recapture in income. E file state taxes only   If you must include a recapture amount in income, show it on Form 1040, line 11 (“Alimony received”). E file state taxes only Cross out “received” and enter “recapture. E file state taxes only ” On the dotted line next to the amount, enter your spouse's last name and SSN or ITIN. E file state taxes only Deducting the recapture. E file state taxes only   If you can deduct a recapture amount, show it on Form 1040, line 31a (“Alimony paid”). E file state taxes only Cross out “paid” and enter “recapture. E file state taxes only ” In the space provided, enter your spouse's SSN or ITIN. E file state taxes only Prev  Up  Next   Home   More Online Publications
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The E File State Taxes Only

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