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Free E File 2011

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Free E File 2011

Free e file 2011 11. Free e file 2011   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. Free e file 2011 Kickbacks. Free e file 2011 Form 1099-MISC. Free e file 2011 Exception. Free e file 2011 Tax preparation fees. Free e file 2011 Covered executive branch official. Free e file 2011 Exceptions to denial of deduction. Free e file 2011 Indirect political contributions. Free e file 2011 Type of deduction. Free e file 2011 Repayment—$3,000 or less. Free e file 2011 Repayment—over $3,000. Free e file 2011 Method 1. Free e file 2011 Method 2. Free e file 2011 Repayment does not apply. Free e file 2011 Year of deduction (or credit). Free e file 2011 Telephone. Free e file 2011 What's New Standard mileage rate. Free e file 2011  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. Free e file 2011 5 cents per mile. Free e file 2011 For more information, see Car and truck expenses under Miscellaneous Expenses. Free e file 2011 Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. Free e file 2011 Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. Free e file 2011 Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. Free e file 2011 If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Free e file 2011 To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. Free e file 2011 Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. Free e file 2011 For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Free e file 2011 Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. Free e file 2011 If the expenses are substantiated, you can deduct the allowable amount on your tax return. Free e file 2011 Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. Free e file 2011 For example, you can deduct 100% of the cost of meals on your business books and records. Free e file 2011 However, only 50% of these costs are allowed by law as a tax deduction. Free e file 2011 How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. Free e file 2011 If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Free e file 2011 If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. Free e file 2011 If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. Free e file 2011 See Table 11-1 , Reporting Reimbursements. Free e file 2011 Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Free e file 2011 Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. Free e file 2011 An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. Free e file 2011 The advance is reasonably calculated not to exceed the amount of anticipated expenses. Free e file 2011 You make the advance within a reasonable period of time of your employee paying or incurring the expense. Free e file 2011 If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. Free e file 2011 Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Free e file 2011 Adequate accounting. Free e file 2011   Your employees must adequately account to you for their travel, meals, and entertainment expenses. Free e file 2011 They must give you documentary evidence of their travel, mileage, and other employee business expenses. Free e file 2011 This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. Free e file 2011 Excess reimbursement or allowance. Free e file 2011   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. Free e file 2011 The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Free e file 2011 Reasonable period of time. Free e file 2011   A reasonable period of time depends on the facts and circumstances. Free e file 2011 Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Free e file 2011 You give an advance within 30 days of the time the employee pays or incurs the expense. Free e file 2011 Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Free e file 2011 Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Free e file 2011 You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. Free e file 2011 How to deduct. Free e file 2011   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. Free e file 2011 Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Free e file 2011 If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). Free e file 2011   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. Free e file 2011 S. Free e file 2011 Corporation Income Tax Return. Free e file 2011 If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. Free e file 2011 Table 11-1. Free e file 2011 Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. Free e file 2011 Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Free e file 2011 Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. Free e file 2011 Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Free e file 2011 The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Free e file 2011 Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. Free e file 2011 The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Free e file 2011 A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. Free e file 2011 No reimbursement plan The entire amount as wages in box 1. Free e file 2011 Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. Free e file 2011 In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. Free e file 2011 Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Free e file 2011 Federal rate. Free e file 2011   The federal rate can be figured using any one of the following methods. Free e file 2011 For car expenses: The standard mileage rate. Free e file 2011 A fixed and variable rate (FAVR). Free e file 2011 For per diem amounts: The regular federal per diem rate. Free e file 2011 The standard meal allowance. Free e file 2011 The high-low rate. Free e file 2011 Car allowance. Free e file 2011   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Free e file 2011 Beginning in 2013, the standard business mileage rate is 56. Free e file 2011 5 cents per mile. Free e file 2011   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Free e file 2011 This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. Free e file 2011 ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Free e file 2011 ). Free e file 2011 For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Free e file 2011 irs. Free e file 2011 gov/irb/2010-51_IRB/ar14. Free e file 2011 html and Notice 2012-72, available at www. Free e file 2011 irs. Free e file 2011 gov/irb/2012-50_IRB/ar10. Free e file 2011 html. Free e file 2011 Per diem allowance. Free e file 2011   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. Free e file 2011 Regular federal per diem rate. Free e file 2011   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. Free e file 2011 It has two components: Lodging expense, and Meal and incidental expense (M&IE). Free e file 2011 The rates are different for different locations. Free e file 2011 Publication 1542 lists the rates in the continental United States. Free e file 2011 Standard meal allowance. Free e file 2011   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Free e file 2011 You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). Free e file 2011 Internet access. Free e file 2011    Per diem rates are available on the Internet. Free e file 2011 You can access per diem rates at www. Free e file 2011 gsa. Free e file 2011 gov/perdiemrates. Free e file 2011 High-low method. Free e file 2011   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Free e file 2011 It eliminates the need to keep a current list of the per diem rate for each city. Free e file 2011   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. Free e file 2011 All other areas have a per diem amount of $163 ($52 for M&IE). Free e file 2011 The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Free e file 2011   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Free e file 2011 The rate for all other locations increased to $170 ($52 for M&IE). Free e file 2011 For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. Free e file 2011 However, you must use the same rate for all employees reimbursed under the high-low method. Free e file 2011   For more information about the high-low method, see Notice 2013-65, available at www. Free e file 2011 irs. Free e file 2011 gov/irb/2013-44_IRB/ar13. Free e file 2011 html. Free e file 2011 See Publication 1542 (available on the Internet at IRS. Free e file 2011 gov) for the current per diem rates for all locations. Free e file 2011 Reporting per diem and car allowances. Free e file 2011   The following discussion explains how to report per diem and car allowances. Free e file 2011 The manner in which you report them depends on how the allowance compares to the federal rate. Free e file 2011 See Table 11-1. Free e file 2011 Allowance less than or equal to the federal rate. Free e file 2011   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. Free e file 2011 Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Free e file 2011 See How to deduct under Accountable Plans, earlier. Free e file 2011 Allowance more than the federal rate. Free e file 2011   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Free e file 2011   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Free e file 2011 Deduct it as travel expenses (as explained above). Free e file 2011 This part of the allowance is treated as reimbursed under an accountable plan. Free e file 2011   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. Free e file 2011 Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Free e file 2011 This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Free e file 2011 Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. Free e file 2011 The deduction limit applies even if you reimburse them for 100% of the expenses. Free e file 2011 Application of the 50% limit. Free e file 2011   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. Free e file 2011 It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Free e file 2011 The deduction limit may also apply to meals you furnish on your premises to your employees. Free e file 2011 Related expenses. Free e file 2011   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. Free e file 2011 Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. Free e file 2011 However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. Free e file 2011 Amount subject to 50% limit. Free e file 2011   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. Free e file 2011 The per diem allowance. Free e file 2011 The federal rate for M&IE. Free e file 2011   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. Free e file 2011 If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. Free e file 2011 Meal expenses when subject to “hours of service” limits. Free e file 2011   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. Free e file 2011   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Free e file 2011 De minimis (minimal) fringe benefit. Free e file 2011   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. Free e file 2011 See Publication 15-B for additional information on de minimis fringe benefits. Free e file 2011 Company cafeteria or executive dining room. Free e file 2011   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Free e file 2011 This includes the cost of maintaining the facilities for providing the food and beverages. Free e file 2011 These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). Free e file 2011 Employee activities. Free e file 2011   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. Free e file 2011 The benefit must be primarily for your employees who are not highly compensated. Free e file 2011   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Free e file 2011 Owned a 10% or more interest in the business during the year or the preceding year. Free e file 2011 An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Free e file 2011 Received more than $115,000 in pay for the preceding year. Free e file 2011 You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. Free e file 2011   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Free e file 2011 Meals or entertainment treated as compensation. Free e file 2011   The 50% limit does not apply to either of the following. Free e file 2011 Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. Free e file 2011 Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. Free e file 2011 Sales of meals or entertainment. Free e file 2011   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Free e file 2011 For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. Free e file 2011 The 50% limit does not apply to this expense. Free e file 2011 Providing meals or entertainment to general public to promote goodwill. Free e file 2011   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Free e file 2011 The 50% limit does not apply to this expense. Free e file 2011 Director, stockholder, or employee meetings. Free e file 2011   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Free e file 2011 You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Free e file 2011 These expenses are subject to the 50% limit. Free e file 2011 Trade association meetings. Free e file 2011   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Free e file 2011 These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Free e file 2011 Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Free e file 2011 All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Free e file 2011 The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Free e file 2011 You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. Free e file 2011 Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Free e file 2011 Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Free e file 2011 Advertising expenses. Free e file 2011   You generally can deduct reasonable advertising expenses that are directly related to your business activities. Free e file 2011 Generally, you cannot deduct amounts paid to influence legislation (i. Free e file 2011 e. Free e file 2011 , lobbying). Free e file 2011 See Lobbying expenses , later. Free e file 2011   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. Free e file 2011 For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Free e file 2011 S. Free e file 2011 Savings Bonds, or to participate in similar causes is usually deductible. Free e file 2011 Anticipated liabilities. Free e file 2011   Anticipated liabilities or reserves for anticipated liabilities are not deductible. Free e file 2011 For example, assume you sold 1-year TV service contracts this year totaling $50,000. Free e file 2011 From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Free e file 2011 You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Free e file 2011 You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Free e file 2011 Bribes and kickbacks. Free e file 2011   Engaging in the payment of bribes or kickbacks is a serious criminal matter. Free e file 2011 Such activity could result in criminal prosecution. Free e file 2011 Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. Free e file 2011   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. Free e file 2011 Meaning of “generally enforced. Free e file 2011 ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. Free e file 2011 For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. Free e file 2011 Kickbacks. Free e file 2011   A kickback is a payment for referring a client, patient, or customer. Free e file 2011 The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. Free e file 2011 In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. Free e file 2011   For example, the Yard Corporation is in the business of repairing ships. Free e file 2011 It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Free e file 2011 Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. Free e file 2011 These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Free e file 2011 Form 1099-MISC. Free e file 2011   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. Free e file 2011 See Form 1099-MISC for more information. Free e file 2011 Car and truck expenses. Free e file 2011   The costs of operating a car, truck, or other vehicle in your business are deductible. Free e file 2011 For more information on how to figure your deduction, see Publication 463. Free e file 2011 Charitable contributions. Free e file 2011   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Free e file 2011 If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Free e file 2011 However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Free e file 2011 See the Instructions for Form 1120 for more information. Free e file 2011 Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Free e file 2011 Example. Free e file 2011 You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Free e file 2011 The purpose of the ad was to encourage readers to buy your products. Free e file 2011 Your payment is not a charitable contribution. Free e file 2011 You can deduct it as an advertising expense. Free e file 2011 Example. Free e file 2011 You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Free e file 2011 Your payment is not a charitable contribution. Free e file 2011 You can deduct it as a business expense. Free e file 2011 See Publication 526 for a discussion of donated inventory, including capital gain property. Free e file 2011 Club dues and membership fees. Free e file 2011   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. Free e file 2011 This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Free e file 2011 Exception. Free e file 2011   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Free e file 2011 Boards of trade. Free e file 2011 Business leagues. Free e file 2011 Chambers of commerce. Free e file 2011 Civic or public service organizations. Free e file 2011 Professional organizations such as bar associations and medical associations. Free e file 2011 Real estate boards. Free e file 2011 Trade associations. Free e file 2011 Credit card convenience fees. Free e file 2011   Credit card companies charge a fee to businesses who accept their cards. Free e file 2011 This fee when paid or incurred by the business can be deducted as a business expense. Free e file 2011 Damages recovered. Free e file 2011   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. Free e file 2011 You must include this compensation in your income. Free e file 2011 However, you may be able to take a special deduction. Free e file 2011 The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Free e file 2011 The deduction is the smaller of the following. Free e file 2011 The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. Free e file 2011 Your losses from the injury you have not deducted. Free e file 2011 Demolition expenses or losses. Free e file 2011   Amounts paid or incurred to demolish a structure are not deductible. Free e file 2011 These amounts are added to the basis of the land where the demolished structure was located. Free e file 2011 Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Free e file 2011 Education expenses. Free e file 2011   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Free e file 2011 See Education Expenses in chapter 2. Free e file 2011   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Free e file 2011 You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. Free e file 2011 For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. Free e file 2011   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. Free e file 2011 This is true even if the education maintains or improves skills presently required in your business. Free e file 2011 For more information on education expenses, see Publication 970. Free e file 2011 Franchise, trademark, trade name. Free e file 2011   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). Free e file 2011   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. Free e file 2011   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. Free e file 2011 Impairment-related expenses. Free e file 2011   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. Free e file 2011   You are disabled if you have either of the following. Free e file 2011 A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Free e file 2011 A physical or mental impairment that substantially limits one or more of your major life activities. Free e file 2011   The expense qualifies as a business expense if all the following apply. Free e file 2011 Your work clearly requires the expense for you to satisfactorily perform that work. Free e file 2011 The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Free e file 2011 Their treatment is not specifically provided for under other tax law provisions. Free e file 2011 Example. Free e file 2011 You are blind. Free e file 2011 You must use a reader to do your work, both at and away from your place of work. Free e file 2011 The reader's services are only for your work. Free e file 2011 You can deduct your expenses for the reader as a business expense. Free e file 2011 Internet-related expenses. Free e file 2011   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Free e file 2011 If you are starting a business you may have to amortize these expenses as start-up costs. Free e file 2011 For more information about amortizing start-up and organizational costs, see chapter 8. Free e file 2011 Interview expense allowances. Free e file 2011   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Free e file 2011 You can deduct the reimbursements as a business expense. Free e file 2011 However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Free e file 2011 Legal and professional fees. Free e file 2011   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. Free e file 2011 However, usually legal fees you pay to acquire business assets are not deductible. Free e file 2011 These costs are added to the basis of the property. Free e file 2011   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. Free e file 2011 If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. Free e file 2011 The result is the portion of the invoice attributable to business expenses. Free e file 2011 The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Free e file 2011   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Free e file 2011 However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Free e file 2011 See Publication 529, Miscellaneous Deductions. Free e file 2011 Tax preparation fees. Free e file 2011   The cost of hiring a tax professional, such as a C. Free e file 2011 P. Free e file 2011 A. Free e file 2011 , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. Free e file 2011 Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Free e file 2011   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. Free e file 2011 Licenses and regulatory fees. Free e file 2011   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Free e file 2011 Some licenses and fees may have to be amortized. Free e file 2011 See chapter 8 for more information. Free e file 2011 Lobbying expenses. Free e file 2011   Generally, lobbying expenses are not deductible. Free e file 2011 Lobbying expenses include amounts paid or incurred for any of the following activities. Free e file 2011 Influencing legislation. Free e file 2011 Participating in or intervening in any political campaign for, or against, any candidate for public office. Free e file 2011 Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Free e file 2011 Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Free e file 2011 Researching, preparing, planning, or coordinating any of the preceding activities. Free e file 2011   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. Free e file 2011 For information on making this allocation, see section 1. Free e file 2011 162-28 of the regulations. Free e file 2011   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Free e file 2011 The organization conducts lobbying activities on matters of direct financial interest to your business. Free e file 2011 A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Free e file 2011   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. Free e file 2011 Covered executive branch official. Free e file 2011   For purposes of this discussion, a covered executive branch official is any of the following. Free e file 2011 The President. Free e file 2011 The Vice President. Free e file 2011 Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. Free e file 2011 Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). Free e file 2011 Exceptions to denial of deduction. Free e file 2011   The general denial of the deduction does not apply to the following. Free e file 2011 Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. Free e file 2011 An Indian tribal government is treated as a local council or similar governing body. Free e file 2011 Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). Free e file 2011 Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). Free e file 2011 Moving machinery. Free e file 2011   Generally, the cost of moving machinery from one city to another is a deductible expense. Free e file 2011 So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Free e file 2011 You can deduct the cost of installing the machinery in the new location. Free e file 2011 However, you must capitalize the costs of installing or moving newly purchased machinery. Free e file 2011 Outplacement services. Free e file 2011   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. Free e file 2011 are deductible. Free e file 2011   The costs of outplacement services may cover more than one deduction category. Free e file 2011 For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. Free e file 2011   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Free e file 2011 Penalties and fines. Free e file 2011   Penalties paid for late performance or nonperformance of a contract are generally deductible. Free e file 2011 For instance, you own and operate a construction company. Free e file 2011 Under a contract, you are to finish construction of a building by a certain date. Free e file 2011 Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Free e file 2011 You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. Free e file 2011 These additional costs are deductible business expenses. Free e file 2011   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. Free e file 2011 These fines or penalties include the following amounts. Free e file 2011 Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Free e file 2011 Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. Free e file 2011 Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Free e file 2011 Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Free e file 2011   Examples of nondeductible penalties and fines include the following. Free e file 2011 Fines for violating city housing codes. Free e file 2011 Fines paid by truckers for violating state maximum highway weight laws. Free e file 2011 Fines for violating air quality laws. Free e file 2011 Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Free e file 2011   A fine or penalty does not include any of the following. Free e file 2011 Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. Free e file 2011 Court costs or stenographic and printing charges. Free e file 2011 Compensatory damages paid to a government. Free e file 2011 Political contributions. Free e file 2011   Contributions or gifts paid to political parties or candidates are not deductible. Free e file 2011 In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Free e file 2011 Indirect political contributions. Free e file 2011   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Free e file 2011 Examples of nondeductible expenses include the following. Free e file 2011 Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Free e file 2011 Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. Free e file 2011 Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Free e file 2011 Repairs. Free e file 2011   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Free e file 2011 Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. Free e file 2011 Otherwise, the cost must be capitalized and depreciated. Free e file 2011 See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Free e file 2011   The cost of repairs includes the costs of labor, supplies, and certain other items. Free e file 2011 The value of your own labor is not deductible. Free e file 2011 Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). Free e file 2011 Repayments. Free e file 2011   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. Free e file 2011 Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Free e file 2011 Type of deduction. Free e file 2011   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Free e file 2011 For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. Free e file 2011 If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Free e file 2011   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. Free e file 2011 However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. Free e file 2011 Repayment—$3,000 or less. Free e file 2011   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Free e file 2011 Repayment—over $3,000. Free e file 2011   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Free e file 2011 However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. Free e file 2011 ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Free e file 2011 If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Free e file 2011 Method 1. Free e file 2011   Figure your tax for 2013 claiming a deduction for the repaid amount. Free e file 2011 Method 2. Free e file 2011   Figure your tax for 2013 claiming a credit for the repaid amount. Free e file 2011 Follow these steps. Free e file 2011 Figure your tax for 2013 without deducting the repaid amount. Free e file 2011 Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Free e file 2011 Subtract the tax in (2) from the tax shown on your return for the earlier year. Free e file 2011 This is the amount of your credit. Free e file 2011 Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Free e file 2011   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Free e file 2011   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Free e file 2011 R. Free e file 2011 C. Free e file 2011 1341” next to line 71. Free e file 2011 Example. Free e file 2011 For 2012, you filed a return and reported your income on the cash method. Free e file 2011 In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Free e file 2011 Your filing status in 2013 and 2012 is single. Free e file 2011 Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. Free e file 2011 Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. Free e file 2011 Repayment does not apply. Free e file 2011   This discussion does not apply to the following. Free e file 2011 Deductions for bad debts. Free e file 2011 Deductions from sales to customers, such as returns and allowances, and similar items. Free e file 2011 Deductions for legal and other expenses of contesting the repayment. Free e file 2011 Year of deduction (or credit). Free e file 2011   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. Free e file 2011 If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. Free e file 2011 For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. Free e file 2011 Subscriptions. Free e file 2011   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Free e file 2011 Supplies and materials. Free e file 2011   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. Free e file 2011   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. Free e file 2011 You do not keep a record of when they are used. Free e file 2011 You do not take an inventory of the amount on hand at the beginning and end of the tax year. Free e file 2011 This method does not distort your income. Free e file 2011   You can also deduct the cost of books, professional instruments, equipment, etc. Free e file 2011 , if you normally use them within a year. Free e file 2011 However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. Free e file 2011 For more information regarding depreciation see Publication 946, How To Depreciate Property. Free e file 2011 Utilities. Free e file 2011   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Free e file 2011 However, any part due to personal use is not deductible. Free e file 2011 Telephone. Free e file 2011   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Free e file 2011 However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Free e file 2011 Prev  Up  Next   Home   More Online Publications
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The Free E File 2011

Free e file 2011 3. Free e file 2011   Exclusions From Gross Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident AliensForeign Earned Income and Housing Amount Nonresident AliensInterest Income Dividend Income Services Performed for Foreign Employer Gambling Winnings From Dog or Horse Racing Gain From the Sale of Your Main Home Scholarships and Fellowship GrantsExpenses that do not qualify. Free e file 2011 Introduction Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. Free e file 2011 An exclusion from gross income is generally income you receive that is not included in your U. Free e file 2011 S. Free e file 2011 income and is not subject to U. Free e file 2011 S. Free e file 2011 tax. Free e file 2011 This chapter covers some of the more common exclusions allowed to resident and nonresident aliens. Free e file 2011 Topics - This chapter discusses: Nontaxable interest, Nontaxable dividends, Certain compensation paid by a foreign employer, Gain from sale of home, and Scholarships and fellowship grants. Free e file 2011 Useful Items - You may want to see: Publication 54 Tax Guide for U. Free e file 2011 S. Free e file 2011 Citizens and Resident Aliens Abroad 523 Selling Your Home See chapter 12 for information about getting these publications. Free e file 2011 Resident Aliens Resident aliens may be able to exclude the following items from their gross income. Free e file 2011 Foreign Earned Income and Housing Amount If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. Free e file 2011 The exclusion is $97,600 in 2013. Free e file 2011 In addition, you may be able to exclude or deduct certain foreign housing amounts. Free e file 2011 You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the United States has an income tax treaty. Free e file 2011 For more information, see Publication 54. Free e file 2011 Foreign country. Free e file 2011    A foreign country is any territory under the sovereignty of a government other than that of the United States. Free e file 2011   The term “foreign country” includes the country's territorial waters and airspace, but not international waters and the airspace above them. Free e file 2011 It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Free e file 2011   The term “foreign country” does not include U. Free e file 2011 S. Free e file 2011 possessions or territories. Free e file 2011 It does not include the Antarctic region. Free e file 2011 Nonresident Aliens Nonresident aliens can exclude the following items from their gross income. Free e file 2011 Interest Income Interest income that is not connected with a U. Free e file 2011 S. Free e file 2011 trade or business is excluded from income if it is from: Deposits (including certificates of deposit) with persons in the banking business, Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and Amounts held by an insurance company under an agreement to pay interest on them. Free e file 2011 State and local government obligations. Free e file 2011   Interest on obligations of a state or political subdivision, the District of Columbia, or a U. Free e file 2011 S. Free e file 2011 possession, generally is not included in income. Free e file 2011 However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income. Free e file 2011 Portfolio interest. Free e file 2011   Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. Free e file 2011 To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to NRA withholding. Free e file 2011 Note. Free e file 2011 For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. Free e file 2011 Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below. Free e file 2011 Obligations in registered form. Free e file 2011   Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person. Free e file 2011   Generally, an obligation is in registered form if: (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. Free e file 2011   An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. Free e file 2011 For more information on whether obligations are considered to be in registered form, see Portfolio interest in Publication 515. Free e file 2011 Obligations not in registered form. Free e file 2011    For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign-targeted. Free e file 2011 A bearer obligation is foreign-targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a United States person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any United States person who holds the obligation will be subject to limits under the United States income tax laws. Free e file 2011   Documentation is not required for interest on bearer obligations to qualify as portfolio interest. Free e file 2011 In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding. Free e file 2011 Interest that does not qualify as portfolio interest. Free e file 2011   Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. Free e file 2011 You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies. Free e file 2011 Contingent interest. Free e file 2011   Portfolio interest does not include contingent interest. Free e file 2011 Contingent interest is either of the following: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person, Income or profits of the debtor or related person, Any change in value of any property of the debtor or a related person, or Any dividend, partnership distributions, or similar payments made by the debtor or a related person. Free e file 2011 For exceptions, see Internal Revenue Code section 871(h)(4)(C). Free e file 2011 Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations. Free e file 2011 Related persons. Free e file 2011   Related persons include the following. Free e file 2011 Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free e file 2011 ), and lineal descendants (children, grandchildren, etc. Free e file 2011 ). Free e file 2011 Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. Free e file 2011 Certain corporations, partnerships, and other entities. Free e file 2011 For details, see Nondeductible Loss in chapter 2 of Publication 544. Free e file 2011 Exception for existing debt. Free e file 2011   Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued: On or before April 7, 1993, or After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued. Free e file 2011 Dividend Income The following dividend income is exempt from the 30% tax. Free e file 2011 Certain dividends paid by foreign corporations. Free e file 2011   There is no 30% tax on U. Free e file 2011 S. Free e file 2011 source dividends you receive from a foreign corporation. Free e file 2011 See Second exception under Dividends in chapter 2 for how to figure the amount of U. Free e file 2011 S. Free e file 2011 source dividends. Free e file 2011 Certain interest-related dividends. Free e file 2011   There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2013. Free e file 2011 The mutual fund will designate in writing which dividends are interest-related dividends. Free e file 2011 Certain short-term capital gain dividends. Free e file 2011   There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. Free e file 2011 The mutual fund will designate in writing which dividends are short-term capital gain dividends. Free e file 2011 This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year. Free e file 2011 Services Performed for Foreign Employer If you were paid by a foreign employer, your U. Free e file 2011 S. Free e file 2011 source income may be exempt from U. Free e file 2011 S. Free e file 2011 tax, but only if you meet one of the situations discussed next. Free e file 2011 Employees of foreign persons, organizations, or offices. Free e file 2011   Income for personal services performed in the United States as a nonresident alien is not considered to be from U. Free e file 2011 S. Free e file 2011 sources and is tax exempt if you meet all three of the following conditions. Free e file 2011 You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U. Free e file 2011 S. Free e file 2011 corporation, a U. Free e file 2011 S. Free e file 2011 partnership, or a U. Free e file 2011 S. Free e file 2011 citizen or resident. Free e file 2011 You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more than a total of 90 days during the tax year. Free e file 2011 Your pay for these services is not more than $3,000. Free e file 2011 If you do not meet all three conditions, your income from personal services performed in the United States is U. Free e file 2011 S. Free e file 2011 source income and is taxed according to the rules in chapter 4. Free e file 2011   If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. Free e file 2011 To find if your pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were required to and did account to your employer for those expenses. Free e file 2011 If the advances or reimbursements are more than your expenses, include the excess in your pay for these services. Free e file 2011   A day means a calendar day during any part of which you are physically present in the United States. Free e file 2011 Example 1. Free e file 2011 During 2013, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U. Free e file 2011 S. Free e file 2011 partnership. Free e file 2011 Henry, who uses the calendar year as his tax year, was temporarily present in the United States for 60 days during 2013 performing personal services for the overseas office of the partnership. Free e file 2011 That office paid him a total gross salary of $2,800 for those services. Free e file 2011 During 2013, he was not engaged in a trade or business in the United States. Free e file 2011 The salary is not considered U. Free e file 2011 S. Free e file 2011 source income and is exempt from U. Free e file 2011 S. Free e file 2011 tax. Free e file 2011 Example 2. Free e file 2011 The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during 2013 was $4,500. Free e file 2011 He received $2,875 in 2013, and $1,625 in 2014. Free e file 2011 During 2013, he was engaged in a trade or business in the United States because the compensation for his personal services in the United States was more than $3,000. Free e file 2011 Henry's salary is U. Free e file 2011 S. Free e file 2011 source income and is taxed under the rules in chapter 4. Free e file 2011 Crew members. Free e file 2011   Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular crew member of a foreign vessel (for example, a boat or ship) engaged in transportation between the United States and a foreign country or U. Free e file 2011 S. Free e file 2011 possession is not U. Free e file 2011 S. Free e file 2011 source income and is exempt from U. Free e file 2011 S. Free e file 2011 tax. Free e file 2011 This exemption does not apply to compensation for services performed on foreign aircraft. Free e file 2011 Students and exchange visitors. Free e file 2011   Nonresident alien students and exchange visitors present in the United States under “F,” “J,” or “Q” visas can exclude from gross income pay received from a foreign employer. Free e file 2011   This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. Free e file 2011 It also includes the alien's spouse and minor children if they come with the alien or come later to join the alien. Free e file 2011   A nonresident alien temporarily present in the United States under a “J” visa includes an alien individual entering the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Free e file 2011 Foreign employer. Free e file 2011   A foreign employer is: A nonresident alien individual, foreign partnership, or foreign corporation, or An office or place of business maintained in a foreign country or in a U. Free e file 2011 S. Free e file 2011 possession by a U. Free e file 2011 S. Free e file 2011 corporation, a U. Free e file 2011 S. Free e file 2011 partnership, or an individual who is a U. Free e file 2011 S. Free e file 2011 citizen or resident. Free e file 2011   The term “foreign employer” does not include a foreign government. Free e file 2011 Pay from a foreign government that is exempt from U. Free e file 2011 S. Free e file 2011 income tax is discussed in chapter 10. Free e file 2011 Income from certain annuities. Free e file 2011   Do not include in income any annuity received under a qualified annuity plan or from a qualified trust exempt from U. Free e file 2011 S. Free e file 2011 income tax if you meet both of the following conditions. Free e file 2011 You receive the annuity only because: You performed personal services outside the United States while you were a nonresident alien, or You performed personal services inside the United States while you were a nonresident alien and you met the three conditions, described earlier, under Employees of foreign persons, organizations, or offices . Free e file 2011 At the time the first amount is paid as an annuity under the plan (or by the trust), 90% or more of the employees for whom contributions or benefits are provided under the annuity plan (or under the plan of which the trust is a part) are U. Free e file 2011 S. Free e file 2011 citizens or residents. Free e file 2011   If the annuity qualifies under condition (1) but not condition (2) above, you do not have to include the amount in income if: You are a resident of a country that gives a substantially equal exclusion to U. Free e file 2011 S. Free e file 2011 citizens and residents, or You are a resident of a beneficiary developing country under Title V of the Trade Act of 1974. Free e file 2011   If you are not sure whether the annuity is from a qualified annuity plan or qualified trust, ask the person who made the payment. Free e file 2011 Income affected by treaties. Free e file 2011   Income of any kind that is exempt from U. Free e file 2011 S. Free e file 2011 tax under a treaty to which the United States is a party is excluded from your gross income. Free e file 2011 Income on which the tax is only limited by treaty, however, is included in gross income. Free e file 2011 See chapter 9. Free e file 2011 Gambling Winnings From Dog or Horse Racing You can exclude from your gross income winnings from legal wagers initiated outside the United States in a parimutuel pool with respect to a live horse or dog race in the United States. Free e file 2011 Gain From the Sale of Your Main Home If you sold your main home, you may be able to exclude up to $250,000 of the gain on the sale of your home. Free e file 2011 If you are married and file a joint return, you may be able to exclude up to $500,000. Free e file 2011 For information on the requirements for this exclusion, see Publication 523. Free e file 2011 This exclusion does not apply to nonresident aliens who are subject to the expatriation tax rules discussed in chapter 4. Free e file 2011 Scholarships and Fellowship Grants If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. Free e file 2011 The rules discussed here apply to both resident and nonresident aliens. Free e file 2011 If a nonresident alien receives a grant that is not from U. Free e file 2011 S. Free e file 2011 sources, it is not subject to U. Free e file 2011 S. Free e file 2011 tax. Free e file 2011 See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U. Free e file 2011 S. Free e file 2011 sources. Free e file 2011 A scholarship or fellowship is excludable from income only if: You are a candidate for a degree at an eligible educational institution, and You use the scholarship or fellowship to pay qualified education expenses. Free e file 2011 Candidate for a degree. Free e file 2011   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Free e file 2011 Eligible educational institution. Free e file 2011   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free e file 2011 Qualified education expenses. Free e file 2011   These are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Free e file 2011 These items must be required of all students in your course of instruction. Free e file 2011 However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. Free e file 2011 Expenses that do not qualify. Free e file 2011   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Free e file 2011 This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Free e file 2011 Scholarship or fellowship amounts used to pay these costs are taxable. Free e file 2011 Amounts used to pay expenses that do not qualify. Free e file 2011   A scholarship amount used to pay any expense that does not qualify is taxable, even if the expense is a fee that must be paid to the institution as a condition of enrollment or attendance. Free e file 2011 Payment for services. Free e file 2011   You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. Free e file 2011 This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree. Free e file 2011 Example. Free e file 2011 On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. Free e file 2011 As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. Free e file 2011 Of the $2,500 scholarship, $1,000 represents payment for her services. Free e file 2011 Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship. Free e file 2011 Prev  Up  Next   Home   More Online Publications