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File An Amended Tax Return Online

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File An Amended Tax Return Online

File an amended tax return online 1. File an amended tax return online   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. File an amended tax return online At-risk limits. File an amended tax return online Passive activities. File an amended tax return online Net operating loss. File an amended tax return online When Can I Deduct an Expense?Economic performance. File an amended tax return online Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. File an amended tax return online  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. File an amended tax return online See Optional safe harbor method under Business use of your home , later. File an amended tax return online Introduction This chapter covers the general rules for deducting business expenses. File an amended tax return online Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. File an amended tax return online Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. File an amended tax return online What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. File an amended tax return online An ordinary expense is one that is common and accepted in your industry. File an amended tax return online A necessary expense is one that is helpful and appropriate for your trade or business. File an amended tax return online An expense does not have to be indispensable to be considered necessary. File an amended tax return online Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. File an amended tax return online In some cases you may not be allowed to deduct the expense at all. File an amended tax return online Therefore, it is important to distinguish usual business expenses from expenses that include the following. File an amended tax return online The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. File an amended tax return online Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. File an amended tax return online Some of your business expenses may be included in figuring cost of goods sold. File an amended tax return online Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. File an amended tax return online If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. File an amended tax return online The following are types of expenses that go into figuring cost of goods sold. File an amended tax return online The cost of products or raw materials, including freight. File an amended tax return online Storage. File an amended tax return online Direct labor (including contributions to pension or annuity plans) for workers who produce the products. File an amended tax return online Factory overhead. File an amended tax return online Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. File an amended tax return online Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. File an amended tax return online This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. File an amended tax return online For more information, see the following sources. File an amended tax return online Cost of goods sold—chapter 6 of Publication 334. File an amended tax return online Inventories—Publication 538. File an amended tax return online Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. File an amended tax return online Capital Expenses You must capitalize, rather than deduct, some costs. File an amended tax return online These costs are a part of your investment in your business and are called “capital expenses. File an amended tax return online ” Capital expenses are considered assets in your business. File an amended tax return online In general, you capitalize three types of costs. File an amended tax return online Business start-up costs (See Tip below). File an amended tax return online Business assets. File an amended tax return online Improvements. File an amended tax return online You can elect to deduct or amortize certain business start-up costs. File an amended tax return online See chapters 7 and 8. File an amended tax return online Cost recovery. File an amended tax return online   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. File an amended tax return online These recovery methods allow you to deduct part of your cost each year. File an amended tax return online In this way, you are able to recover your capital expense. File an amended tax return online See Amortization (chapter 8) and Depletion (chapter 9) in this publication. File an amended tax return online A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. File an amended tax return online A greater portion of these costs can be deducted if the property is qualified disaster assistance property. File an amended tax return online See Publication 946 for details. File an amended tax return online Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. File an amended tax return online These costs may include expenses for advertising, travel, or wages for training employees. File an amended tax return online If you go into business. File an amended tax return online   When you go into business, treat all costs you had to get your business started as capital expenses. File an amended tax return online   Usually you recover costs for a particular asset through depreciation. File an amended tax return online Generally, you cannot recover other costs until you sell the business or otherwise go out of business. File an amended tax return online However, you can choose to amortize certain costs for setting up your business. File an amended tax return online See Starting a Business in chapter 8 for more information on business start-up costs. File an amended tax return online If your attempt to go into business is unsuccessful. File an amended tax return online   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. File an amended tax return online The costs you had before making a decision to acquire or begin a specific business. File an amended tax return online These costs are personal and nondeductible. File an amended tax return online They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. File an amended tax return online The costs you had in your attempt to acquire or begin a specific business. File an amended tax return online These costs are capital expenses and you can deduct them as a capital loss. File an amended tax return online   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. File an amended tax return online   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. File an amended tax return online You cannot take a deduction for these costs. File an amended tax return online You will recover the costs of these assets when you dispose of them. File an amended tax return online Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. File an amended tax return online You must fully capitalize the cost of these assets, including freight and installation charges. File an amended tax return online Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. File an amended tax return online See Regulations section 1. File an amended tax return online 263A-2 for information on these rules. File an amended tax return online Improvements Improvements are generally major expenditures. File an amended tax return online Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. File an amended tax return online The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. File an amended tax return online Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. File an amended tax return online Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. File an amended tax return online However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. File an amended tax return online Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. File an amended tax return online Restoration plan. File an amended tax return online   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. File an amended tax return online This applies even if some of the work would by itself be classified as repairs. File an amended tax return online Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. File an amended tax return online Motor vehicles. File an amended tax return online   You usually capitalize the cost of a motor vehicle you use in your business. File an amended tax return online You can recover its cost through annual deductions for depreciation. File an amended tax return online   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. File an amended tax return online See Publication 463. File an amended tax return online   Generally, repairs you make to your business vehicle are currently deductible. File an amended tax return online However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. File an amended tax return online Roads and driveways. File an amended tax return online    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. File an amended tax return online The cost of maintaining a private road on your business property is a deductible expense. File an amended tax return online Tools. File an amended tax return online   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. File an amended tax return online Machinery parts. File an amended tax return online   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. File an amended tax return online Heating equipment. File an amended tax return online   The cost of changing from one heating system to another is a capital expense. File an amended tax return online Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. File an amended tax return online However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. File an amended tax return online You can deduct the business part. File an amended tax return online For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. File an amended tax return online The remaining 30% is personal interest and generally is not deductible. File an amended tax return online See chapter 4 for information on deducting interest and the allocation rules. File an amended tax return online Business use of your home. File an amended tax return online   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. File an amended tax return online These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. File an amended tax return online   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. File an amended tax return online The business part of your home must be used exclusively and regularly for your trade or business. File an amended tax return online The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. File an amended tax return online   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. File an amended tax return online   Your home office qualifies as your principal place of business if you meet the following requirements. File an amended tax return online You use the office exclusively and regularly for administrative or management activities of your trade or business. File an amended tax return online You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. File an amended tax return online   If you have more than one business location, determine your principal place of business based on the following factors. File an amended tax return online The relative importance of the activities performed at each location. File an amended tax return online If the relative importance factor does not determine your principal place of business, consider the time spent at each location. File an amended tax return online Optional safe harbor method. File an amended tax return online   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. File an amended tax return online This method is an alternative to the calculation, allocation, and substantiation of actual expenses. File an amended tax return online   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. File an amended tax return online Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). File an amended tax return online You are not required to allocate these deductions between personal and business use, as is required under the regular method. File an amended tax return online If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. File an amended tax return online   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. File an amended tax return online All of the requirements discussed earlier under Business use of your home still apply. File an amended tax return online   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. File an amended tax return online    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. File an amended tax return online Business use of your car. File an amended tax return online   If you use your car exclusively in your business, you can deduct car expenses. File an amended tax return online If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. File an amended tax return online Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. File an amended tax return online   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. File an amended tax return online Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. File an amended tax return online Beginning in 2013, the standard mileage rate is 56. File an amended tax return online 5 cents per mile. File an amended tax return online   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. File an amended tax return online   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. File an amended tax return online How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. File an amended tax return online Recovery of amount deducted (tax benefit rule). File an amended tax return online   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. File an amended tax return online If you have a recovery in a later year, include the recovered amount in income in that year. File an amended tax return online However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. File an amended tax return online   For more information on recoveries and the tax benefit rule, see Publication 525. File an amended tax return online Payments in kind. File an amended tax return online   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. File an amended tax return online You cannot deduct the cost of your own labor. File an amended tax return online   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. File an amended tax return online If these costs are included in the cost of goods sold, do not deduct them again as a business expense. File an amended tax return online Limits on losses. File an amended tax return online   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. File an amended tax return online There may be limits on how much of the loss you can deduct. File an amended tax return online Not-for-profit limits. File an amended tax return online   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. File an amended tax return online See Not-for-Profit Activities , later. File an amended tax return online At-risk limits. File an amended tax return online   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. File an amended tax return online You are at risk in any activity for the following. File an amended tax return online The money and adjusted basis of property you contribute to the activity. File an amended tax return online Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. File an amended tax return online For more information, see Publication 925. File an amended tax return online Passive activities. File an amended tax return online   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. File an amended tax return online In general, deductions for losses from passive activities only offset income from passive activities. File an amended tax return online You cannot use any excess deductions to offset other income. File an amended tax return online In addition, passive activity credits can only offset the tax on net passive income. File an amended tax return online Any excess loss or credits are carried over to later years. File an amended tax return online Suspended passive losses are fully deductible in the year you completely dispose of the activity. File an amended tax return online For more information, see Publication 925. File an amended tax return online Net operating loss. File an amended tax return online   If your deductions are more than your income for the year, you may have a “net operating loss. File an amended tax return online ” You can use a net operating loss to lower your taxes in other years. File an amended tax return online See Publication 536 for more information. File an amended tax return online   See Publication 542 for information about net operating losses of corporations. File an amended tax return online When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. File an amended tax return online An accounting method is a set of rules used to determine when and how income and expenses are reported. File an amended tax return online The two basic methods are the cash method and the accrual method. File an amended tax return online Whichever method you choose must clearly reflect income. File an amended tax return online For more information on accounting methods, see Publication 538. File an amended tax return online Cash method. File an amended tax return online   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. File an amended tax return online Accrual method. File an amended tax return online   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. File an amended tax return online The all-events test has been met. File an amended tax return online The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. File an amended tax return online Economic performance has occurred. File an amended tax return online Economic performance. File an amended tax return online   You generally cannot deduct or capitalize a business expense until economic performance occurs. File an amended tax return online If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. File an amended tax return online If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. File an amended tax return online Example. File an amended tax return online Your tax year is the calendar year. File an amended tax return online In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. File an amended tax return online You paid it by check in January 2014. File an amended tax return online If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. File an amended tax return online If you use the cash method of accounting, deduct the expense on your 2014 return. File an amended tax return online Prepayment. File an amended tax return online   You generally cannot deduct expenses in advance, even if you pay them in advance. File an amended tax return online This rule applies to both the cash and accrual methods. File an amended tax return online It applies to prepaid interest, prepaid insurance premiums, and any other 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. File an amended tax return online Example. File an amended tax return online In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. File an amended tax return online Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. File an amended tax return online You can deduct the rent for 2014 and 2015 on your tax returns for those years. File an amended tax return online Contested liability. File an amended tax return online   Under the cash method, you can deduct a contested liability only in the year you pay the liability. File an amended tax return online Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. File an amended tax return online S. File an amended tax return online possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. File an amended tax return online However, to take the deduction in the year of payment or transfer, you must meet certain conditions. File an amended tax return online See Regulations section 1. File an amended tax return online 461-2. File an amended tax return online Related person. File an amended tax return online   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. File an amended tax return online However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. File an amended tax return online Your deduction is allowed when the amount is includible in income by the related cash method payee. File an amended tax return online See Related Persons in Publication 538. File an amended tax return online Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. File an amended tax return online Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. File an amended tax return online The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. File an amended tax return online It does not apply to corporations other than S corporations. File an amended tax return online In determining whether you are carrying on an activity for profit, several factors are taken into account. File an amended tax return online No one factor alone is decisive. File an amended tax return online Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. File an amended tax return online Presumption of profit. File an amended tax return online   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. File an amended tax return online Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. File an amended tax return online The activity must be substantially the same for each year within this period. File an amended tax return online You have a profit when the gross income from an activity exceeds the deductions. File an amended tax return online   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. File an amended tax return online   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. File an amended tax return online This means the limits discussed here will not apply. File an amended tax return online You can take all your business deductions from the activity, even for the years that you have a loss. File an amended tax return online You can rely on this presumption unless the IRS later shows it to be invalid. File an amended tax return online Using the presumption later. File an amended tax return online   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. File an amended tax return online   You can elect to do this by filing Form 5213. File an amended tax return online Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. File an amended tax return online   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. File an amended tax return online Accordingly, it will not restrict your deductions. File an amended tax return online Rather, you will gain time to earn a profit in the required number of years. File an amended tax return online If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. File an amended tax return online If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. File an amended tax return online   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. File an amended tax return online The period is extended only for deductions of the activity and any related deductions that might be affected. File an amended tax return online    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. File an amended tax return online Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. File an amended tax return online Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. File an amended tax return online You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. File an amended tax return online However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. File an amended tax return online Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. File an amended tax return online If you are an individual, these deductions may be taken only if you itemize. File an amended tax return online These deductions may be taken on Schedule A (Form 1040). File an amended tax return online Category 1. File an amended tax return online   Deductions you can take for personal as well as for business activities are allowed in full. File an amended tax return online For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. File an amended tax return online Deduct them on the appropriate lines of Schedule A (Form 1040). File an amended tax return online For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). File an amended tax return online The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. File an amended tax return online The reduction amount returns to $100 for tax years beginning after December 31, 2009. File an amended tax return online See Publication 547 for more information on casualty losses. File an amended tax return online For the limits that apply to home mortgage interest, see Publication 936. File an amended tax return online Category 2. File an amended tax return online   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. File an amended tax return online Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. File an amended tax return online Category 3. File an amended tax return online   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. File an amended tax return online Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. File an amended tax return online Where more than one asset is involved, allocate depreciation and these other deductions proportionally. File an amended tax return online    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). File an amended tax return online They are subject to the 2%-of-adjusted-gross-income limit. File an amended tax return online See Publication 529 for information on this limit. File an amended tax return online Example. File an amended tax return online Adriana is engaged in a not-for-profit activity. File an amended tax return online The income and expenses of the activity are as follows. File an amended tax return online Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. File an amended tax return online The limit is reached in category (3), as follows. File an amended tax return online Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. File an amended tax return online $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. File an amended tax return online Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. File an amended tax return online The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). File an amended tax return online Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. File an amended tax return online Partnerships and S corporations. File an amended tax return online   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. File an amended tax return online They are reflected in the individual shareholder's or partner's distributive shares. File an amended tax return online More than one activity. File an amended tax return online   If you have several undertakings, each may be a separate activity or several undertakings may be combined. File an amended tax return online The following are the most significant facts and circumstances in making this determination. File an amended tax return online The degree of organizational and economic interrelationship of various undertakings. File an amended tax return online The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. File an amended tax return online The similarity of the undertakings. File an amended tax return online   The IRS will generally accept your characterization if it is supported by facts and circumstances. File an amended tax return online    If you are carrying on two or more different activities, keep the deductions and income from each one separate. File an amended tax return online Figure separately whether each is a not-for-profit activity. File an amended tax return online Then figure the limit on deductions and losses separately for each activity that is not for profit. File an amended tax return online Prev  Up  Next   Home   More Online Publications
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2008 Changes to Form 1065 – Frequently Asked Questions

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The File An Amended Tax Return Online

File an amended tax return online 20. File an amended tax return online   Standard Deduction Table of Contents What's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. File an amended tax return online Married persons who filed separate returns. File an amended tax return online What's New Standard deduction increased. File an amended tax return online  The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2013 than it was for 2012. File an amended tax return online The amount depends on your filing status. File an amended tax return online You can use the 2013 Standard Deduction Tables in this chapter to figure your standard deduction. File an amended tax return online Introduction This chapter discusses the following topics. File an amended tax return online How to figure the amount of your standard deduction. File an amended tax return online The standard deduction for dependents. File an amended tax return online Who should itemize deductions. File an amended tax return online Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. File an amended tax return online If you have a choice, you can use the method that gives you the lower tax. File an amended tax return online The standard deduction is a dollar amount that reduces your taxable income. File an amended tax return online It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). File an amended tax return online The standard deduction is higher for taxpayers who: Are 65 or older, or Are blind. File an amended tax return online You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. File an amended tax return online Persons not eligible for the standard deduction. File an amended tax return online   Your standard deduction is zero and you should itemize any deductions you have if: Your filing status is married filing separately, and your spouse itemizes deductions on his or her return, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. File an amended tax return online You are considered a dual-status alien if you were both a nonresident and resident alien during the year. File an amended tax return online Note. File an amended tax return online If you are a nonresident alien who is married to a U. File an amended tax return online S. File an amended tax return online citizen or resident alien at the end of the year, you can choose to be treated as a U. File an amended tax return online S. File an amended tax return online resident. File an amended tax return online (See Publication 519, U. File an amended tax return online S. File an amended tax return online Tax Guide for Aliens. File an amended tax return online ) If you make this choice, you can take the standard deduction. File an amended tax return online If an exemption for you can be claimed on another person's return (such as your parents' return), your standard deduction may be limited. File an amended tax return online See Standard Deduction for Dependents, later. File an amended tax return online Standard Deduction Amount The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. File an amended tax return online Generally, the standard deduction amounts are adjusted each year for inflation. File an amended tax return online The standard deduction amounts for most people are shown in Table 20-1. File an amended tax return online Decedent's final return. File an amended tax return online   The standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. File an amended tax return online However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. File an amended tax return online Higher Standard Deduction for Age (65 or Older) If you are age 65 or older on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. File an amended tax return online You are considered 65 on the day before your 65th birthday. File an amended tax return online Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. File an amended tax return online Use Table 20-2 to figure the standard deduction amount. File an amended tax return online Higher Standard Deduction for Blindness If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. File an amended tax return online Not totally blind. File an amended tax return online   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is 20 degrees or less. File an amended tax return online   If your eye condition is not likely to improve beyond these limits, the statement should include this fact. File an amended tax return online You must keep the statement in your records. File an amended tax return online   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. File an amended tax return online Spouse 65 or Older or Blind You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and cannot be claimed as a dependent by another taxpayer. File an amended tax return online You cannot claim the higher standard deduction for an individual other than yourself and your spouse. File an amended tax return online Examples The following examples illustrate how to determine your standard deduction using Tables 20-1 and 20-2. File an amended tax return online Example 1. File an amended tax return online Larry, 46, and Donna, 33, are filing a joint return for 2013. File an amended tax return online Neither is blind, and neither can be claimed as a dependent. File an amended tax return online They decide not to itemize their deductions. File an amended tax return online They use Table 20-1. File an amended tax return online Their standard deduction is $12,200. File an amended tax return online Example 2. File an amended tax return online The facts are the same as in Example 1 except that Larry is blind at the end of 2013. File an amended tax return online Larry and Donna use Table 20-2. File an amended tax return online Their standard deduction is $13,400. File an amended tax return online Example 3. File an amended tax return online Bill and Lisa are filing a joint return for 2013. File an amended tax return online Both are over age 65. File an amended tax return online Neither is blind, and neither can be claimed as a dependent. File an amended tax return online If they do not itemize deductions, they use Table 20-2. File an amended tax return online Their standard deduction is $14,600. File an amended tax return online Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). File an amended tax return online However, if the individual is 65 or older or blind, the standard deduction may be higher. File an amended tax return online If you (or your spouse, if filing jointly) can be claimed as a dependent on someone else's return, use Table 20-3 to determine your standard deduction. File an amended tax return online Earned income defined. File an amended tax return online   Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform. File an amended tax return online    For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. File an amended tax return online See Scholarships and fellowships in chapter 12 for more information on what qualifies as a scholarship or fellowship grant. File an amended tax return online Example 1. File an amended tax return online Michael is single. File an amended tax return online His parents can claim an exemption for him on their 2013 tax return. File an amended tax return online He has interest income of $780 and wages of $150. File an amended tax return online He has no itemized deductions. File an amended tax return online Michael uses Table 20-3 to find his standard deduction. File an amended tax return online He enters $150 (his earned income) on line 1, $500 ($150 + $350) on line 3, $1,000 (the larger of $500 and $1,000) on line 5, and $6,100 on line 6. File an amended tax return online His standard deduction, on line 7a, is $1,000 (the smaller of $1,000 and $6,100). File an amended tax return online Example 2. File an amended tax return online Joe, a 22-year-old full-time college student, can be claimed as a dependent on his parents' 2013 tax return. File an amended tax return online Joe is married and files a separate return. File an amended tax return online His wife does not itemize deductions on her separate return. File an amended tax return online Joe has $1,500 in interest income and wages of $3,800. File an amended tax return online He has no itemized deductions. File an amended tax return online Joe finds his standard deduction by using Table 20-3. File an amended tax return online He enters his earned income, $3,800 on line 1. File an amended tax return online He adds lines 1 and 2 and enters $4,150 on line 3. File an amended tax return online On line 5, he enters $4,150, the larger of lines 3 and 4. File an amended tax return online Because Joe is married filing a separate return, he enters $6,100 on line 6. File an amended tax return online On line 7a he enters $4,150 as his standard deduction because it is smaller than $6,100, the amount on line 6. File an amended tax return online Example 3. File an amended tax return online Amy, who is single, can be claimed as a dependent on her parents' 2013 tax return. File an amended tax return online She is 18 years old and blind. File an amended tax return online She has interest income of $1,300 and wages of $2,900. File an amended tax return online She has no itemized deductions. File an amended tax return online Amy uses Table 20-3 to find her standard deduction. File an amended tax return online She enters her wages of $2,900 on line 1. File an amended tax return online She adds lines 1 and 2 and enters $3,250 on line 3. File an amended tax return online On line 5, she enters $3,250, the larger of lines 3 and 4. File an amended tax return online Because she is single, Amy enters $6,100 on line 6. File an amended tax return online She enters $3,250 on line 7a. File an amended tax return online This is the smaller of the amounts on lines 5 and 6. File an amended tax return online Because she checked one box in the top part of the worksheet, she enters $1,500 on line 7b. File an amended tax return online She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,750 on line 7c. File an amended tax return online Example 4. File an amended tax return online Ed is single. File an amended tax return online His parents can claim an exemption for him on their 2013 tax return. File an amended tax return online He has wages of $7,000, interest income of $500, and a business loss of $3,000. File an amended tax return online He has no itemized deductions. File an amended tax return online Ed uses Table 20-3 to figure his standard deduction. File an amended tax return online He enters $4,000 ($7,000 - $3,000) on line 1. File an amended tax return online He adds lines 1 and 2 and enters $4,350 on line 3. File an amended tax return online On line 5 he enters $4,350, the larger of lines 3 and 4. File an amended tax return online Because he is single, Ed enters $6,100 on line 6. File an amended tax return online On line 7a he enters $4,350 as his standard deduction because it is smaller than $6,100, the amount on line 6. File an amended tax return online Who Should Itemize You should itemize deductions if your total deductions are more than the standard deduction amount. File an amended tax return online Also, you should itemize if you do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction . File an amended tax return online You should first figure your itemized deductions and compare that amount to your standard deduction to make sure you are using the method that gives you the greater benefit. File an amended tax return online You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than: $250,000 if single ($275,000 if head of household, $300,000 if married filing jointly or qualifying widow(er); or $150,000 if married filing separately). File an amended tax return online See chapter 29 or the instructions for Schedule A (Form 1040) for more information on figuring the correct amount of your itemized deductions. File an amended tax return online When to itemize. File an amended tax return online   You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Do not qualify for the standard deduction, or the amount you can claim is limited, Had large uninsured medical and dental expenses during the year, Paid interest and taxes on your home, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities, or Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled. File an amended tax return online These deductions are explained in chapters 21–28. File an amended tax return online    If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. File an amended tax return online Enter the amount from Schedule A, line 29, on Form 1040, line 40. File an amended tax return online Electing to itemize for state tax or other purposes. File an amended tax return online   Even if your itemized deductions are less than your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. File an amended tax return online You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. File an amended tax return online To make this election, you must check the box on line 30 of Schedule A. File an amended tax return online Changing your mind. File an amended tax return online   If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X, Amended U. File an amended tax return online S. File an amended tax return online Individual Income Tax Return. File an amended tax return online See Amended Returns and Claims for Refund in chapter 1 for more information on amended returns. File an amended tax return online Married persons who filed separate returns. File an amended tax return online   You can change methods of taking deductions only if you and your spouse both make the same changes. File an amended tax return online Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change. File an amended tax return online    You and your spouse can use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. File an amended tax return online You both must use the same method of claiming deductions. File an amended tax return online If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. File an amended tax return online See Persons not eligible for the standard deduction , earlier. File an amended tax return online 2013 Standard Deduction Tables If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1949, or are blind. File an amended tax return online Table 20-1. File an amended tax return online Standard Deduction Chart for Most People* If your filing status is. File an amended tax return online . File an amended tax return online . File an amended tax return online Your standard deduction is: Single or Married filing separately $6,100 Married filing jointly or Qualifying widow(er) with dependent child 12,200 Head of household 8,950 *Do not use this chart if you were born before January 2, 1949, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. File an amended tax return online Use Table 20-2 or 20-3 instead. File an amended tax return online Table 20-2. File an amended tax return online Standard Deduction Chart for People Born Before January 2, 1949, or Who are Blind Check the correct number of boxes below. File an amended tax return online Then go to the chart. File an amended tax return online You: Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked   IF  your filing status is. File an amended tax return online . File an amended tax return online . File an amended tax return online AND the number in the box above is. File an amended tax return online . File an amended tax return online . File an amended tax return online THEN your standard deduction is. File an amended tax return online . File an amended tax return online . File an amended tax return online Single 1 $7,600   2 9,100 Married filing jointly 1 $13,400 or Qualifying 2 14,600 widow(er) with 3 15,800 dependent child 4 17,000 Married filing 1 $7,300 separately 2 8,500   3 9,700   4 10,900 Head of household 1 $10,450   2 11,950 *If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 20-3 instead. File an amended tax return online Table 20-3. File an amended tax return online Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse if filing jointly) as a dependent. File an amended tax return online Check the correct number of boxes below. File an amended tax return online Then go to the worksheet. File an amended tax return online You:   Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked 1. File an amended tax return online Enter your earned income (defined below). File an amended tax return online If none, enter -0-. File an amended tax return online 1. File an amended tax return online   2. File an amended tax return online Additional amount. File an amended tax return online 2. File an amended tax return online $350 3. File an amended tax return online Add lines 1 and 2. File an amended tax return online 3. File an amended tax return online   4. File an amended tax return online Minimum standard deduction. File an amended tax return online 4. File an amended tax return online $1,000 5. File an amended tax return online Enter the larger of line 3 or line 4. File an amended tax return online 5. File an amended tax return online   6. File an amended tax return online Enter the amount shown below for your filing status. File an amended tax return online Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 6. File an amended tax return online   7. File an amended tax return online Standard deduction. File an amended tax return online         a. File an amended tax return online Enter the smaller of line 5 or line 6. File an amended tax return online If born after January 1, 1949, and not blind, stop here. File an amended tax return online This is your standard deduction. File an amended tax return online Otherwise, go on to line 7b. File an amended tax return online 7a. File an amended tax return online     b. File an amended tax return online If born before January 2, 1949, or blind, multiply $1,500 ($1,200 if married) by the number in the box above. File an amended tax return online 7b. File an amended tax return online     c. File an amended tax return online Add lines 7a and 7b. File an amended tax return online This is your standard deduction for 2013. File an amended tax return online 7c. File an amended tax return online   Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. File an amended tax return online It also includes any amount received as a scholarship that you must include in your income. File an amended tax return online Prev  Up  Next   Home   More Online Publications