Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Filing Taxes Online

1040eCan Still E File 2011 TaxesFile 1040nr Online FreeFree File Federal And State Taxes Online2011 Taxes TurbotaxFree HrblockFree State Tax Prep OnlineIrs Form 1040x 2011Can I Efile A 2012 Tax ReturnAmend Tax Return 2010State Tax Filing SoftwareTax Software FreeCheapest State Tax FilingIrs Tax Form 2011Tax Forms For 20081040ez State Tax Form1040 NowHow To Fill Out A 1040xBuy Turbotax 2011Corporate Tax SoftwarePrintable 1040ez FormState Taxes Free OnlineFree Tax FormsFree Tax ActFree State Tax E-fileCan I File 1040ez OnlineCan You File An Amended Tax Return OnlineFile State Tax Return2012 Tax Form 88631040 XFree File State Tax OnlyHow Do You Amend Your TaxesHow To File 1040nrAmend A 2013 Tax ReturnIrs Gov Free FileFree EfileAmend Income Tax ReturnH&r Block Online 1040xFree Federal Income Tax FilingAmended Tax Return Form

Filing Taxes Online

Filing taxes online 1. Filing taxes 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. Filing taxes online At-risk limits. Filing taxes online Passive activities. Filing taxes online Net operating loss. Filing taxes online When Can I Deduct an Expense?Economic performance. Filing taxes 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. Filing taxes online  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Filing taxes online See Optional safe harbor method under Business use of your home , later. Filing taxes online Introduction This chapter covers the general rules for deducting business expenses. Filing taxes 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. Filing taxes 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. Filing taxes online What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Filing taxes online An ordinary expense is one that is common and accepted in your industry. Filing taxes online A necessary expense is one that is helpful and appropriate for your trade or business. Filing taxes online An expense does not have to be indispensable to be considered necessary. Filing taxes 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. Filing taxes online In some cases you may not be allowed to deduct the expense at all. Filing taxes online Therefore, it is important to distinguish usual business expenses from expenses that include the following. Filing taxes online The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Filing taxes 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. Filing taxes online Some of your business expenses may be included in figuring cost of goods sold. Filing taxes online Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Filing taxes online If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Filing taxes online The following are types of expenses that go into figuring cost of goods sold. Filing taxes online The cost of products or raw materials, including freight. Filing taxes online Storage. Filing taxes online Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Filing taxes online Factory overhead. Filing taxes online Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Filing taxes online Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Filing taxes 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. Filing taxes online For more information, see the following sources. Filing taxes online Cost of goods sold—chapter 6 of Publication 334. Filing taxes online Inventories—Publication 538. Filing taxes online Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Filing taxes online Capital Expenses You must capitalize, rather than deduct, some costs. Filing taxes online These costs are a part of your investment in your business and are called “capital expenses. Filing taxes online ” Capital expenses are considered assets in your business. Filing taxes online In general, you capitalize three types of costs. Filing taxes online Business start-up costs (See Tip below). Filing taxes online Business assets. Filing taxes online Improvements. Filing taxes online You can elect to deduct or amortize certain business start-up costs. Filing taxes online See chapters 7 and 8. Filing taxes online Cost recovery. Filing taxes 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. Filing taxes online These recovery methods allow you to deduct part of your cost each year. Filing taxes online In this way, you are able to recover your capital expense. Filing taxes online See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Filing taxes online A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Filing taxes online A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Filing taxes online See Publication 946 for details. Filing taxes online Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Filing taxes online These costs may include expenses for advertising, travel, or wages for training employees. Filing taxes online If you go into business. Filing taxes online   When you go into business, treat all costs you had to get your business started as capital expenses. Filing taxes online   Usually you recover costs for a particular asset through depreciation. Filing taxes online Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Filing taxes online However, you can choose to amortize certain costs for setting up your business. Filing taxes online See Starting a Business in chapter 8 for more information on business start-up costs. Filing taxes online If your attempt to go into business is unsuccessful. Filing taxes 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. Filing taxes online The costs you had before making a decision to acquire or begin a specific business. Filing taxes online These costs are personal and nondeductible. Filing taxes online They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Filing taxes online The costs you had in your attempt to acquire or begin a specific business. Filing taxes online These costs are capital expenses and you can deduct them as a capital loss. Filing taxes 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. Filing taxes online   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Filing taxes online You cannot take a deduction for these costs. Filing taxes online You will recover the costs of these assets when you dispose of them. Filing taxes online Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Filing taxes online You must fully capitalize the cost of these assets, including freight and installation charges. Filing taxes online Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Filing taxes online See Regulations section 1. Filing taxes online 263A-2 for information on these rules. Filing taxes online Improvements Improvements are generally major expenditures. Filing taxes 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. Filing taxes 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. Filing taxes 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. Filing taxes online Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Filing taxes online However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Filing taxes online Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Filing taxes online Restoration plan. Filing taxes 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. Filing taxes online This applies even if some of the work would by itself be classified as repairs. Filing taxes online Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Filing taxes online Motor vehicles. Filing taxes online   You usually capitalize the cost of a motor vehicle you use in your business. Filing taxes online You can recover its cost through annual deductions for depreciation. Filing taxes online   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Filing taxes online See Publication 463. Filing taxes online   Generally, repairs you make to your business vehicle are currently deductible. Filing taxes online However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Filing taxes online Roads and driveways. Filing taxes 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. Filing taxes online The cost of maintaining a private road on your business property is a deductible expense. Filing taxes online Tools. Filing taxes 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. Filing taxes online Machinery parts. Filing taxes 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. Filing taxes online Heating equipment. Filing taxes online   The cost of changing from one heating system to another is a capital expense. Filing taxes online Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Filing taxes 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. Filing taxes online You can deduct the business part. Filing taxes 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. Filing taxes online The remaining 30% is personal interest and generally is not deductible. Filing taxes online See chapter 4 for information on deducting interest and the allocation rules. Filing taxes online Business use of your home. Filing taxes online   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Filing taxes online These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Filing taxes online   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Filing taxes online The business part of your home must be used exclusively and regularly for your trade or business. Filing taxes 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. Filing taxes 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. Filing taxes online   Your home office qualifies as your principal place of business if you meet the following requirements. Filing taxes online You use the office exclusively and regularly for administrative or management activities of your trade or business. Filing taxes online You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Filing taxes online   If you have more than one business location, determine your principal place of business based on the following factors. Filing taxes online The relative importance of the activities performed at each location. Filing taxes online If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Filing taxes online Optional safe harbor method. Filing taxes 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. Filing taxes online This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Filing taxes 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. Filing taxes 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). Filing taxes online You are not required to allocate these deductions between personal and business use, as is required under the regular method. Filing taxes online If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Filing taxes online   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Filing taxes online All of the requirements discussed earlier under Business use of your home still apply. Filing taxes online   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Filing taxes 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. Filing taxes online Business use of your car. Filing taxes online   If you use your car exclusively in your business, you can deduct car expenses. Filing taxes online If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Filing taxes online Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Filing taxes online   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Filing taxes 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. Filing taxes online Beginning in 2013, the standard mileage rate is 56. Filing taxes online 5 cents per mile. Filing taxes 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. Filing taxes online   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Filing taxes 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. Filing taxes online Recovery of amount deducted (tax benefit rule). Filing taxes 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. Filing taxes online If you have a recovery in a later year, include the recovered amount in income in that year. Filing taxes 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. Filing taxes online   For more information on recoveries and the tax benefit rule, see Publication 525. Filing taxes online Payments in kind. Filing taxes online   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Filing taxes online You cannot deduct the cost of your own labor. Filing taxes online   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Filing taxes online If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Filing taxes online Limits on losses. Filing taxes online   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Filing taxes online There may be limits on how much of the loss you can deduct. Filing taxes online Not-for-profit limits. Filing taxes 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. Filing taxes online See Not-for-Profit Activities , later. Filing taxes online At-risk limits. Filing taxes 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. Filing taxes online You are at risk in any activity for the following. Filing taxes online The money and adjusted basis of property you contribute to the activity. Filing taxes 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. Filing taxes online For more information, see Publication 925. Filing taxes online Passive activities. Filing taxes 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. Filing taxes online In general, deductions for losses from passive activities only offset income from passive activities. Filing taxes online You cannot use any excess deductions to offset other income. Filing taxes online In addition, passive activity credits can only offset the tax on net passive income. Filing taxes online Any excess loss or credits are carried over to later years. Filing taxes online Suspended passive losses are fully deductible in the year you completely dispose of the activity. Filing taxes online For more information, see Publication 925. Filing taxes online Net operating loss. Filing taxes online   If your deductions are more than your income for the year, you may have a “net operating loss. Filing taxes online ” You can use a net operating loss to lower your taxes in other years. Filing taxes online See Publication 536 for more information. Filing taxes online   See Publication 542 for information about net operating losses of corporations. Filing taxes online When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Filing taxes online An accounting method is a set of rules used to determine when and how income and expenses are reported. Filing taxes online The two basic methods are the cash method and the accrual method. Filing taxes online Whichever method you choose must clearly reflect income. Filing taxes online For more information on accounting methods, see Publication 538. Filing taxes online Cash method. Filing taxes online   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Filing taxes online Accrual method. Filing taxes online   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Filing taxes online The all-events test has been met. Filing taxes 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. Filing taxes online Economic performance has occurred. Filing taxes online Economic performance. Filing taxes online   You generally cannot deduct or capitalize a business expense until economic performance occurs. Filing taxes 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. Filing taxes online If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Filing taxes online Example. Filing taxes online Your tax year is the calendar year. Filing taxes online In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Filing taxes online You paid it by check in January 2014. Filing taxes 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. Filing taxes online If you use the cash method of accounting, deduct the expense on your 2014 return. Filing taxes online Prepayment. Filing taxes online   You generally cannot deduct expenses in advance, even if you pay them in advance. Filing taxes online This rule applies to both the cash and accrual methods. Filing taxes 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. Filing taxes online Example. Filing taxes online In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Filing taxes 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. Filing taxes online You can deduct the rent for 2014 and 2015 on your tax returns for those years. Filing taxes online Contested liability. Filing taxes online   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Filing taxes online Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Filing taxes online S. Filing taxes 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. Filing taxes online However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Filing taxes online See Regulations section 1. Filing taxes online 461-2. Filing taxes online Related person. Filing taxes online   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Filing taxes 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. Filing taxes online Your deduction is allowed when the amount is includible in income by the related cash method payee. Filing taxes online See Related Persons in Publication 538. Filing taxes 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. Filing taxes online Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Filing taxes online The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Filing taxes online It does not apply to corporations other than S corporations. Filing taxes online In determining whether you are carrying on an activity for profit, several factors are taken into account. Filing taxes online No one factor alone is decisive. Filing taxes 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. Filing taxes online Presumption of profit. Filing taxes 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. Filing taxes 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. Filing taxes online The activity must be substantially the same for each year within this period. Filing taxes online You have a profit when the gross income from an activity exceeds the deductions. Filing taxes 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. Filing taxes 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. Filing taxes online This means the limits discussed here will not apply. Filing taxes online You can take all your business deductions from the activity, even for the years that you have a loss. Filing taxes online You can rely on this presumption unless the IRS later shows it to be invalid. Filing taxes online Using the presumption later. Filing taxes 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. Filing taxes online   You can elect to do this by filing Form 5213. Filing taxes 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. Filing taxes online   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Filing taxes online Accordingly, it will not restrict your deductions. Filing taxes online Rather, you will gain time to earn a profit in the required number of years. Filing taxes online If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Filing taxes 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. Filing taxes 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. Filing taxes online The period is extended only for deductions of the activity and any related deductions that might be affected. Filing taxes 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. Filing taxes 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. Filing taxes 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. Filing taxes online You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Filing taxes 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. Filing taxes 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. Filing taxes online If you are an individual, these deductions may be taken only if you itemize. Filing taxes online These deductions may be taken on Schedule A (Form 1040). Filing taxes online Category 1. Filing taxes online   Deductions you can take for personal as well as for business activities are allowed in full. Filing taxes online For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Filing taxes online Deduct them on the appropriate lines of Schedule A (Form 1040). Filing taxes 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). Filing taxes 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. Filing taxes online The reduction amount returns to $100 for tax years beginning after December 31, 2009. Filing taxes online See Publication 547 for more information on casualty losses. Filing taxes online For the limits that apply to home mortgage interest, see Publication 936. Filing taxes online Category 2. Filing taxes 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. Filing taxes online Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Filing taxes online Category 3. Filing taxes 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. Filing taxes online Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Filing taxes online Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Filing taxes online    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Filing taxes online They are subject to the 2%-of-adjusted-gross-income limit. Filing taxes online See Publication 529 for information on this limit. Filing taxes online Example. Filing taxes online Adriana is engaged in a not-for-profit activity. Filing taxes online The income and expenses of the activity are as follows. Filing taxes 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. Filing taxes online The limit is reached in category (3), as follows. Filing taxes 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. Filing taxes 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. Filing taxes online Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Filing taxes online The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Filing taxes 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. Filing taxes online Partnerships and S corporations. Filing taxes online   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Filing taxes online They are reflected in the individual shareholder's or partner's distributive shares. Filing taxes online More than one activity. Filing taxes online   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Filing taxes online The following are the most significant facts and circumstances in making this determination. Filing taxes online The degree of organizational and economic interrelationship of various undertakings. Filing taxes 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. Filing taxes online The similarity of the undertakings. Filing taxes online   The IRS will generally accept your characterization if it is supported by facts and circumstances. Filing taxes online    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Filing taxes online Figure separately whether each is a not-for-profit activity. Filing taxes online Then figure the limit on deductions and losses separately for each activity that is not for profit. Filing taxes online Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Collection Procedures for Taxpayers Filing and/or Paying Late

The Collection Process and Taxpayer Rights

What do I do if I Cannot File or Pay by the Due Date?

What if the IRS Asks for Financial Information to Determine How Much I Can Pay?

What Options Do I Have if I Cannot Full Pay?

What Can the IRS do if I Will Not File or Pay?

How Can I Prevent Future Tax Liabilities?

Page Last Reviewed or Updated: 27-Jan-2014

The Filing Taxes Online

Filing taxes online 1. Filing taxes online   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). Filing taxes online These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). Filing taxes online In addition, the following are subject to the tax on unrelated business income. Filing taxes online Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). Filing taxes online State and municipal colleges and universities. Filing taxes online Qualified state tuition programs. Filing taxes online Medical savings accounts (MSAs) described in section 220(d). Filing taxes online Coverdell savings accounts described in section 530. Filing taxes online U. Filing taxes online S. Filing taxes online instrumentalities. Filing taxes online   A corporation that is a U. Filing taxes online S. Filing taxes online instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. Filing taxes online Colleges and universities. Filing taxes online   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. Filing taxes online As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). Filing taxes online   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. Filing taxes online It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. Filing taxes online If the business activity is unrelated, the income in both instances will be subject to the tax. Filing taxes online If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. Filing taxes online Title-holding corporations. Filing taxes online   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. Filing taxes online   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. Filing taxes online However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. Filing taxes online Example. Filing taxes online X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. Filing taxes online During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. Filing taxes online X also receives $100,000 from source N, which is not related to A's exempt function. Filing taxes online X and A file a consolidated return for the tax year. Filing taxes online X has unrelated business income of $100,000. Filing taxes online Prev  Up  Next   Home   More Online Publications