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Free tax calculator 2011 11. Free tax calculator 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 tax calculator 2011 Kickbacks. Free tax calculator 2011 Form 1099-MISC. Free tax calculator 2011 Exception. Free tax calculator 2011 Tax preparation fees. Free tax calculator 2011 Covered executive branch official. Free tax calculator 2011 Exceptions to denial of deduction. Free tax calculator 2011 Indirect political contributions. Free tax calculator 2011 Type of deduction. Free tax calculator 2011 Repayment—$3,000 or less. Free tax calculator 2011 Repayment—over $3,000. Free tax calculator 2011 Method 1. Free tax calculator 2011 Method 2. Free tax calculator 2011 Repayment does not apply. Free tax calculator 2011 Year of deduction (or credit). Free tax calculator 2011 Telephone. Free tax calculator 2011 What's New Standard mileage rate. Free tax calculator 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 tax calculator 2011 5 cents per mile. Free tax calculator 2011 For more information, see Car and truck expenses under Miscellaneous Expenses. Free tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 2011 If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Free tax calculator 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 tax calculator 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 tax calculator 2011 For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Free tax calculator 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 tax calculator 2011 If the expenses are substantiated, you can deduct the allowable amount on your tax return. Free tax calculator 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 tax calculator 2011 For example, you can deduct 100% of the cost of meals on your business books and records. Free tax calculator 2011 However, only 50% of these costs are allowed by law as a tax deduction. Free tax calculator 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 tax calculator 2011 If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Free tax calculator 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 tax calculator 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 tax calculator 2011 See Table 11-1 , Reporting Reimbursements. Free tax calculator 2011 Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Free tax calculator 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 tax calculator 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 tax calculator 2011 The advance is reasonably calculated not to exceed the amount of anticipated expenses. Free tax calculator 2011 You make the advance within a reasonable period of time of your employee paying or incurring the expense. Free tax calculator 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 tax calculator 2011 Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Free tax calculator 2011 Adequate accounting. Free tax calculator 2011   Your employees must adequately account to you for their travel, meals, and entertainment expenses. Free tax calculator 2011 They must give you documentary evidence of their travel, mileage, and other employee business expenses. Free tax calculator 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 tax calculator 2011 Excess reimbursement or allowance. Free tax calculator 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 tax calculator 2011 The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Free tax calculator 2011 Reasonable period of time. Free tax calculator 2011   A reasonable period of time depends on the facts and circumstances. Free tax calculator 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 tax calculator 2011 You give an advance within 30 days of the time the employee pays or incurs the expense. Free tax calculator 2011 Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Free tax calculator 2011 Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Free tax calculator 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 tax calculator 2011 How to deduct. Free tax calculator 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 tax calculator 2011 Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Free tax calculator 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 tax calculator 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 tax calculator 2011 S. Free tax calculator 2011 Corporation Income Tax Return. Free tax calculator 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 tax calculator 2011 Table 11-1. Free tax calculator 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 tax calculator 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 tax calculator 2011 Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. Free tax calculator 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 tax calculator 2011 The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Free tax calculator 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 tax calculator 2011 The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Free tax calculator 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 tax calculator 2011 No reimbursement plan The entire amount as wages in box 1. Free tax calculator 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 tax calculator 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 tax calculator 2011 Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Free tax calculator 2011 Federal rate. Free tax calculator 2011   The federal rate can be figured using any one of the following methods. Free tax calculator 2011 For car expenses: The standard mileage rate. Free tax calculator 2011 A fixed and variable rate (FAVR). Free tax calculator 2011 For per diem amounts: The regular federal per diem rate. Free tax calculator 2011 The standard meal allowance. Free tax calculator 2011 The high-low rate. Free tax calculator 2011 Car allowance. Free tax calculator 2011   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Free tax calculator 2011 Beginning in 2013, the standard business mileage rate is 56. Free tax calculator 2011 5 cents per mile. Free tax calculator 2011   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Free tax calculator 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 tax calculator 2011 ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Free tax calculator 2011 ). Free tax calculator 2011 For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Free tax calculator 2011 irs. Free tax calculator 2011 gov/irb/2010-51_IRB/ar14. Free tax calculator 2011 html and Notice 2012-72, available at www. Free tax calculator 2011 irs. Free tax calculator 2011 gov/irb/2012-50_IRB/ar10. Free tax calculator 2011 html. Free tax calculator 2011 Per diem allowance. Free tax calculator 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 tax calculator 2011 Regular federal per diem rate. Free tax calculator 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 tax calculator 2011 It has two components: Lodging expense, and Meal and incidental expense (M&IE). Free tax calculator 2011 The rates are different for different locations. Free tax calculator 2011 Publication 1542 lists the rates in the continental United States. Free tax calculator 2011 Standard meal allowance. Free tax calculator 2011   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Free tax calculator 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 tax calculator 2011 Internet access. Free tax calculator 2011    Per diem rates are available on the Internet. Free tax calculator 2011 You can access per diem rates at www. Free tax calculator 2011 gsa. Free tax calculator 2011 gov/perdiemrates. Free tax calculator 2011 High-low method. Free tax calculator 2011   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Free tax calculator 2011 It eliminates the need to keep a current list of the per diem rate for each city. Free tax calculator 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 tax calculator 2011 All other areas have a per diem amount of $163 ($52 for M&IE). Free tax calculator 2011 The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Free tax calculator 2011   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Free tax calculator 2011 The rate for all other locations increased to $170 ($52 for M&IE). Free tax calculator 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 tax calculator 2011 However, you must use the same rate for all employees reimbursed under the high-low method. Free tax calculator 2011   For more information about the high-low method, see Notice 2013-65, available at www. Free tax calculator 2011 irs. Free tax calculator 2011 gov/irb/2013-44_IRB/ar13. Free tax calculator 2011 html. Free tax calculator 2011 See Publication 1542 (available on the Internet at IRS. Free tax calculator 2011 gov) for the current per diem rates for all locations. Free tax calculator 2011 Reporting per diem and car allowances. Free tax calculator 2011   The following discussion explains how to report per diem and car allowances. Free tax calculator 2011 The manner in which you report them depends on how the allowance compares to the federal rate. Free tax calculator 2011 See Table 11-1. Free tax calculator 2011 Allowance less than or equal to the federal rate. Free tax calculator 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 tax calculator 2011 Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Free tax calculator 2011 See How to deduct under Accountable Plans, earlier. Free tax calculator 2011 Allowance more than the federal rate. Free tax calculator 2011   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Free tax calculator 2011   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Free tax calculator 2011 Deduct it as travel expenses (as explained above). Free tax calculator 2011 This part of the allowance is treated as reimbursed under an accountable plan. Free tax calculator 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 tax calculator 2011 Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Free tax calculator 2011 This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Free tax calculator 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 tax calculator 2011 The deduction limit applies even if you reimburse them for 100% of the expenses. Free tax calculator 2011 Application of the 50% limit. Free tax calculator 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 tax calculator 2011 It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Free tax calculator 2011 The deduction limit may also apply to meals you furnish on your premises to your employees. Free tax calculator 2011 Related expenses. Free tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 2011 Amount subject to 50% limit. Free tax calculator 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 tax calculator 2011 The per diem allowance. Free tax calculator 2011 The federal rate for M&IE. Free tax calculator 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 tax calculator 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 tax calculator 2011 Meal expenses when subject to “hours of service” limits. Free tax calculator 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 tax calculator 2011   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Free tax calculator 2011 De minimis (minimal) fringe benefit. Free tax calculator 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 tax calculator 2011 See Publication 15-B for additional information on de minimis fringe benefits. Free tax calculator 2011 Company cafeteria or executive dining room. Free tax calculator 2011   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Free tax calculator 2011 This includes the cost of maintaining the facilities for providing the food and beverages. Free tax calculator 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 tax calculator 2011 Employee activities. Free tax calculator 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 tax calculator 2011 The benefit must be primarily for your employees who are not highly compensated. Free tax calculator 2011   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Free tax calculator 2011 Owned a 10% or more interest in the business during the year or the preceding year. Free tax calculator 2011 An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Free tax calculator 2011 Received more than $115,000 in pay for the preceding year. Free tax calculator 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 tax calculator 2011   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Free tax calculator 2011 Meals or entertainment treated as compensation. Free tax calculator 2011   The 50% limit does not apply to either of the following. Free tax calculator 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 tax calculator 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 tax calculator 2011 Sales of meals or entertainment. Free tax calculator 2011   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Free tax calculator 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 tax calculator 2011 The 50% limit does not apply to this expense. Free tax calculator 2011 Providing meals or entertainment to general public to promote goodwill. Free tax calculator 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 tax calculator 2011 The 50% limit does not apply to this expense. Free tax calculator 2011 Director, stockholder, or employee meetings. Free tax calculator 2011   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Free tax calculator 2011 You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Free tax calculator 2011 These expenses are subject to the 50% limit. Free tax calculator 2011 Trade association meetings. Free tax calculator 2011   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Free tax calculator 2011 These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Free tax calculator 2011 Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Free tax calculator 2011 All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Free tax calculator 2011 The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Free tax calculator 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 tax calculator 2011 Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Free tax calculator 2011 Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Free tax calculator 2011 Advertising expenses. Free tax calculator 2011   You generally can deduct reasonable advertising expenses that are directly related to your business activities. Free tax calculator 2011 Generally, you cannot deduct amounts paid to influence legislation (i. Free tax calculator 2011 e. Free tax calculator 2011 , lobbying). Free tax calculator 2011 See Lobbying expenses , later. Free tax calculator 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 tax calculator 2011 For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Free tax calculator 2011 S. Free tax calculator 2011 Savings Bonds, or to participate in similar causes is usually deductible. Free tax calculator 2011 Anticipated liabilities. Free tax calculator 2011   Anticipated liabilities or reserves for anticipated liabilities are not deductible. Free tax calculator 2011 For example, assume you sold 1-year TV service contracts this year totaling $50,000. Free tax calculator 2011 From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Free tax calculator 2011 You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Free tax calculator 2011 You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Free tax calculator 2011 Bribes and kickbacks. Free tax calculator 2011   Engaging in the payment of bribes or kickbacks is a serious criminal matter. Free tax calculator 2011 Such activity could result in criminal prosecution. Free tax calculator 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 tax calculator 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 tax calculator 2011 Meaning of “generally enforced. Free tax calculator 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 tax calculator 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 tax calculator 2011 Kickbacks. Free tax calculator 2011   A kickback is a payment for referring a client, patient, or customer. Free tax calculator 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 tax calculator 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 tax calculator 2011   For example, the Yard Corporation is in the business of repairing ships. Free tax calculator 2011 It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Free tax calculator 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 tax calculator 2011 These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Free tax calculator 2011 Form 1099-MISC. Free tax calculator 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 tax calculator 2011 See Form 1099-MISC for more information. Free tax calculator 2011 Car and truck expenses. Free tax calculator 2011   The costs of operating a car, truck, or other vehicle in your business are deductible. Free tax calculator 2011 For more information on how to figure your deduction, see Publication 463. Free tax calculator 2011 Charitable contributions. Free tax calculator 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 tax calculator 2011 If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Free tax calculator 2011 However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Free tax calculator 2011 See the Instructions for Form 1120 for more information. Free tax calculator 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 tax calculator 2011 Example. Free tax calculator 2011 You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Free tax calculator 2011 The purpose of the ad was to encourage readers to buy your products. Free tax calculator 2011 Your payment is not a charitable contribution. Free tax calculator 2011 You can deduct it as an advertising expense. Free tax calculator 2011 Example. Free tax calculator 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 tax calculator 2011 Your payment is not a charitable contribution. Free tax calculator 2011 You can deduct it as a business expense. Free tax calculator 2011 See Publication 526 for a discussion of donated inventory, including capital gain property. Free tax calculator 2011 Club dues and membership fees. Free tax calculator 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 tax calculator 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 tax calculator 2011 Exception. Free tax calculator 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 tax calculator 2011 Boards of trade. Free tax calculator 2011 Business leagues. Free tax calculator 2011 Chambers of commerce. Free tax calculator 2011 Civic or public service organizations. Free tax calculator 2011 Professional organizations such as bar associations and medical associations. Free tax calculator 2011 Real estate boards. Free tax calculator 2011 Trade associations. Free tax calculator 2011 Credit card convenience fees. Free tax calculator 2011   Credit card companies charge a fee to businesses who accept their cards. Free tax calculator 2011 This fee when paid or incurred by the business can be deducted as a business expense. Free tax calculator 2011 Damages recovered. Free tax calculator 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 tax calculator 2011 You must include this compensation in your income. Free tax calculator 2011 However, you may be able to take a special deduction. Free tax calculator 2011 The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Free tax calculator 2011 The deduction is the smaller of the following. Free tax calculator 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 tax calculator 2011 Your losses from the injury you have not deducted. Free tax calculator 2011 Demolition expenses or losses. Free tax calculator 2011   Amounts paid or incurred to demolish a structure are not deductible. Free tax calculator 2011 These amounts are added to the basis of the land where the demolished structure was located. Free tax calculator 2011 Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Free tax calculator 2011 Education expenses. Free tax calculator 2011   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Free tax calculator 2011 See Education Expenses in chapter 2. Free tax calculator 2011   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Free tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 2011 This is true even if the education maintains or improves skills presently required in your business. Free tax calculator 2011 For more information on education expenses, see Publication 970. Free tax calculator 2011 Franchise, trademark, trade name. Free tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 2011 Impairment-related expenses. Free tax calculator 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 tax calculator 2011   You are disabled if you have either of the following. Free tax calculator 2011 A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Free tax calculator 2011 A physical or mental impairment that substantially limits one or more of your major life activities. Free tax calculator 2011   The expense qualifies as a business expense if all the following apply. Free tax calculator 2011 Your work clearly requires the expense for you to satisfactorily perform that work. Free tax calculator 2011 The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Free tax calculator 2011 Their treatment is not specifically provided for under other tax law provisions. Free tax calculator 2011 Example. Free tax calculator 2011 You are blind. Free tax calculator 2011 You must use a reader to do your work, both at and away from your place of work. Free tax calculator 2011 The reader's services are only for your work. Free tax calculator 2011 You can deduct your expenses for the reader as a business expense. Free tax calculator 2011 Internet-related expenses. Free tax calculator 2011   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Free tax calculator 2011 If you are starting a business you may have to amortize these expenses as start-up costs. Free tax calculator 2011 For more information about amortizing start-up and organizational costs, see chapter 8. Free tax calculator 2011 Interview expense allowances. Free tax calculator 2011   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Free tax calculator 2011 You can deduct the reimbursements as a business expense. Free tax calculator 2011 However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Free tax calculator 2011 Legal and professional fees. Free tax calculator 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 tax calculator 2011 However, usually legal fees you pay to acquire business assets are not deductible. Free tax calculator 2011 These costs are added to the basis of the property. Free tax calculator 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 tax calculator 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 tax calculator 2011 The result is the portion of the invoice attributable to business expenses. Free tax calculator 2011 The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Free tax calculator 2011   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Free tax calculator 2011 However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Free tax calculator 2011 See Publication 529, Miscellaneous Deductions. Free tax calculator 2011 Tax preparation fees. Free tax calculator 2011   The cost of hiring a tax professional, such as a C. Free tax calculator 2011 P. Free tax calculator 2011 A. Free tax calculator 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 tax calculator 2011 Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Free tax calculator 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 tax calculator 2011 Licenses and regulatory fees. Free tax calculator 2011   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Free tax calculator 2011 Some licenses and fees may have to be amortized. Free tax calculator 2011 See chapter 8 for more information. Free tax calculator 2011 Lobbying expenses. Free tax calculator 2011   Generally, lobbying expenses are not deductible. Free tax calculator 2011 Lobbying expenses include amounts paid or incurred for any of the following activities. Free tax calculator 2011 Influencing legislation. Free tax calculator 2011 Participating in or intervening in any political campaign for, or against, any candidate for public office. Free tax calculator 2011 Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Free tax calculator 2011 Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Free tax calculator 2011 Researching, preparing, planning, or coordinating any of the preceding activities. Free tax calculator 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 tax calculator 2011 For information on making this allocation, see section 1. Free tax calculator 2011 162-28 of the regulations. Free tax calculator 2011   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Free tax calculator 2011 The organization conducts lobbying activities on matters of direct financial interest to your business. Free tax calculator 2011 A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Free tax calculator 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 tax calculator 2011 Covered executive branch official. Free tax calculator 2011   For purposes of this discussion, a covered executive branch official is any of the following. Free tax calculator 2011 The President. Free tax calculator 2011 The Vice President. Free tax calculator 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 tax calculator 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 tax calculator 2011 Exceptions to denial of deduction. Free tax calculator 2011   The general denial of the deduction does not apply to the following. Free tax calculator 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 tax calculator 2011 An Indian tribal government is treated as a local council or similar governing body. Free tax calculator 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 tax calculator 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 tax calculator 2011 Moving machinery. Free tax calculator 2011   Generally, the cost of moving machinery from one city to another is a deductible expense. Free tax calculator 2011 So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Free tax calculator 2011 You can deduct the cost of installing the machinery in the new location. Free tax calculator 2011 However, you must capitalize the costs of installing or moving newly purchased machinery. Free tax calculator 2011 Outplacement services. Free tax calculator 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 tax calculator 2011 are deductible. Free tax calculator 2011   The costs of outplacement services may cover more than one deduction category. Free tax calculator 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 tax calculator 2011   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Free tax calculator 2011 Penalties and fines. Free tax calculator 2011   Penalties paid for late performance or nonperformance of a contract are generally deductible. Free tax calculator 2011 For instance, you own and operate a construction company. Free tax calculator 2011 Under a contract, you are to finish construction of a building by a certain date. Free tax calculator 2011 Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Free tax calculator 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 tax calculator 2011 These additional costs are deductible business expenses. Free tax calculator 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 tax calculator 2011 These fines or penalties include the following amounts. Free tax calculator 2011 Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Free tax calculator 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 tax calculator 2011 Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Free tax calculator 2011 Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Free tax calculator 2011   Examples of nondeductible penalties and fines include the following. Free tax calculator 2011 Fines for violating city housing codes. Free tax calculator 2011 Fines paid by truckers for violating state maximum highway weight laws. Free tax calculator 2011 Fines for violating air quality laws. Free tax calculator 2011 Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Free tax calculator 2011   A fine or penalty does not include any of the following. Free tax calculator 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 tax calculator 2011 Court costs or stenographic and printing charges. Free tax calculator 2011 Compensatory damages paid to a government. Free tax calculator 2011 Political contributions. Free tax calculator 2011   Contributions or gifts paid to political parties or candidates are not deductible. Free tax calculator 2011 In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Free tax calculator 2011 Indirect political contributions. Free tax calculator 2011   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Free tax calculator 2011 Examples of nondeductible expenses include the following. Free tax calculator 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 tax calculator 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 tax calculator 2011 Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Free tax calculator 2011 Repairs. Free tax calculator 2011   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Free tax calculator 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 tax calculator 2011 Otherwise, the cost must be capitalized and depreciated. Free tax calculator 2011 See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Free tax calculator 2011   The cost of repairs includes the costs of labor, supplies, and certain other items. Free tax calculator 2011 The value of your own labor is not deductible. Free tax calculator 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 tax calculator 2011 Repayments. Free tax calculator 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 tax calculator 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 tax calculator 2011 Type of deduction. Free tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 2011 Repayment—$3,000 or less. Free tax calculator 2011   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Free tax calculator 2011 Repayment—over $3,000. Free tax calculator 2011   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Free tax calculator 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 tax calculator 2011 ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Free tax calculator 2011 If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Free tax calculator 2011 Method 1. Free tax calculator 2011   Figure your tax for 2013 claiming a deduction for the repaid amount. Free tax calculator 2011 Method 2. Free tax calculator 2011   Figure your tax for 2013 claiming a credit for the repaid amount. Free tax calculator 2011 Follow these steps. Free tax calculator 2011 Figure your tax for 2013 without deducting the repaid amount. Free tax calculator 2011 Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Free tax calculator 2011 Subtract the tax in (2) from the tax shown on your return for the earlier year. Free tax calculator 2011 This is the amount of your credit. Free tax calculator 2011 Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Free tax calculator 2011   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Free tax calculator 2011   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Free tax calculator 2011 R. Free tax calculator 2011 C. Free tax calculator 2011 1341” next to line 71. Free tax calculator 2011 Example. Free tax calculator 2011 For 2012, you filed a return and reported your income on the cash method. Free tax calculator 2011 In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Free tax calculator 2011 Your filing status in 2013 and 2012 is single. Free tax calculator 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 tax calculator 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 tax calculator 2011 Repayment does not apply. Free tax calculator 2011   This discussion does not apply to the following. Free tax calculator 2011 Deductions for bad debts. Free tax calculator 2011 Deductions from sales to customers, such as returns and allowances, and similar items. Free tax calculator 2011 Deductions for legal and other expenses of contesting the repayment. Free tax calculator 2011 Year of deduction (or credit). Free tax calculator 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 tax calculator 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 tax calculator 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 tax calculator 2011 Subscriptions. Free tax calculator 2011   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Free tax calculator 2011 Supplies and materials. Free tax calculator 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 tax calculator 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 tax calculator 2011 You do not keep a record of when they are used. Free tax calculator 2011 You do not take an inventory of the amount on hand at the beginning and end of the tax year. Free tax calculator 2011 This method does not distort your income. Free tax calculator 2011   You can also deduct the cost of books, professional instruments, equipment, etc. Free tax calculator 2011 , if you normally use them within a year. Free tax calculator 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 tax calculator 2011 For more information regarding depreciation see Publication 946, How To Depreciate Property. Free tax calculator 2011 Utilities. Free tax calculator 2011   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Free tax calculator 2011 However, any part due to personal use is not deductible. Free tax calculator 2011 Telephone. Free tax calculator 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 tax calculator 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 tax calculator 2011 Prev  Up  Next   Home   More Online Publications
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The Free Tax Calculator 2011

Free tax calculator 2011 5. Free tax calculator 2011   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Free tax calculator 2011 Short-term lease. Free tax calculator 2011 Retail space. Free tax calculator 2011 Qualified long-term real property. Free tax calculator 2011 Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Free tax calculator 2011 If there is a connection between any income you receive and your business, the income is business income. Free tax calculator 2011 A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Free tax calculator 2011 You can have business income even if you are not involved in the activity on a regular full-time basis. Free tax calculator 2011 Income from work you do on the side in addition to your regular job can be business income. Free tax calculator 2011 You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Free tax calculator 2011 But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Free tax calculator 2011 For information on selling business assets, see chapter 3. Free tax calculator 2011 Nonemployee compensation. Free tax calculator 2011 Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Free tax calculator 2011 This includes amounts reported as nonemployee compensation in box 7 of the form. Free tax calculator 2011 You can find more information in the instructions on the back of the Form 1099-MISC you received. Free tax calculator 2011 Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Free tax calculator 2011 In most cases, your business income will be in the form of cash, checks, and credit card charges. Free tax calculator 2011 But business income can be in other forms, such as property or services. Free tax calculator 2011 These and other types of income are explained next. Free tax calculator 2011 If you are a U. Free tax calculator 2011 S. Free tax calculator 2011 citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Free tax calculator 2011 S. Free tax calculator 2011 law. Free tax calculator 2011 If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Free tax calculator 2011 For details, see Publication 54, Tax Guide for U. Free tax calculator 2011 S. Free tax calculator 2011 Citizens and Resident Aliens Abroad. Free tax calculator 2011 Bartering for Property or Services Bartering is an exchange of property or services. Free tax calculator 2011 You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Free tax calculator 2011 If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Free tax calculator 2011 Example 1. Free tax calculator 2011 You are a self-employed lawyer. Free tax calculator 2011 You perform legal services for a client, a small corporation. Free tax calculator 2011 In payment for your services, you receive shares of stock in the corporation. Free tax calculator 2011 You must include the fair market value of the shares in income. Free tax calculator 2011 Example 2. Free tax calculator 2011 You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Free tax calculator 2011 You must include the fair rental value of the apartment in your gross receipts. Free tax calculator 2011 Your landlord must include the fair market value of the work of art in his or her rental income. Free tax calculator 2011 Example 3. Free tax calculator 2011 You are a self-employed accountant. Free tax calculator 2011 Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Free tax calculator 2011 Members get in touch with other members directly and bargain for the value of the services to be performed. Free tax calculator 2011 In return for accounting services you provided for the house painter's business, the house painter painted your home. Free tax calculator 2011 You must include in gross receipts the fair market value of the services you received from the house painter. Free tax calculator 2011 The house painter must include the fair market value of your accounting services in his or her gross receipts. Free tax calculator 2011 Example 4. Free tax calculator 2011 You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Free tax calculator 2011 As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Free tax calculator 2011 You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Free tax calculator 2011 The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Free tax calculator 2011 It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Free tax calculator 2011 See Publication 15 (Circular E), Employer's Tax Guide. Free tax calculator 2011 Example 5. Free tax calculator 2011 You operate a plumbing business and use the cash method of accounting. Free tax calculator 2011 You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Free tax calculator 2011 Each member has access to a directory that lists the members of the club and the services available. Free tax calculator 2011 Members contact each other directly and request services to be performed. Free tax calculator 2011 You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Free tax calculator 2011 You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Free tax calculator 2011 Information returns. Free tax calculator 2011   If you are involved in a bartering transaction, you may have to file either of the following forms. Free tax calculator 2011 Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Free tax calculator 2011 Form 1099-MISC, Miscellaneous Income. Free tax calculator 2011 For information about these forms, see the General Instructions for Certain Information Returns. Free tax calculator 2011 Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Free tax calculator 2011 , who provides services (maid services, etc. Free tax calculator 2011 ) for guests, report the rental income and expenses on Schedule C or C-EZ. Free tax calculator 2011 If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Free tax calculator 2011 For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Free tax calculator 2011 Real estate dealer. Free tax calculator 2011   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Free tax calculator 2011 Rent you receive from real estate held for sale to customers is subject to SE tax. Free tax calculator 2011 However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Free tax calculator 2011 Trailer park owner. Free tax calculator 2011   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Free tax calculator 2011    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Free tax calculator 2011 Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Free tax calculator 2011   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Free tax calculator 2011   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Free tax calculator 2011 Hotels, boarding houses, and apartments. Free tax calculator 2011   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Free tax calculator 2011   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Free tax calculator 2011 An example of a service that is not normally provided for the convenience of the occupants is maid service. Free tax calculator 2011 However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Free tax calculator 2011 Prepaid rent. Free tax calculator 2011   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Free tax calculator 2011 This is true no matter what accounting method or period you use. Free tax calculator 2011 Lease bonus. Free tax calculator 2011   A bonus you receive from a lessee for granting a lease is an addition to the rent. Free tax calculator 2011 Include it in your gross receipts in the year received. Free tax calculator 2011 Lease cancellation payments. Free tax calculator 2011   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Free tax calculator 2011 Payments to third parties. Free tax calculator 2011   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Free tax calculator 2011 A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Free tax calculator 2011 Settlement payments. Free tax calculator 2011   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Free tax calculator 2011 Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Free tax calculator 2011 ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Free tax calculator 2011 Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Free tax calculator 2011 If you receive any of those payments, include them in your gross receipts as explained in that discussion. Free tax calculator 2011 Interest and Dividend Income Interest and dividends may be considered business income. Free tax calculator 2011 Interest. Free tax calculator 2011   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Free tax calculator 2011 Interest received on loans is business income if you are in the business of lending money. Free tax calculator 2011 Uncollectible loans. Free tax calculator 2011   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Free tax calculator 2011 If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Free tax calculator 2011 See Bad Debts in chapter 8. Free tax calculator 2011 Unstated interest. Free tax calculator 2011   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Free tax calculator 2011 See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free tax calculator 2011 Dividends. Free tax calculator 2011   Generally, dividends are business income to dealers in securities. Free tax calculator 2011 For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Free tax calculator 2011 If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Free tax calculator 2011   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Free tax calculator 2011 To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Free tax calculator 2011 Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Free tax calculator 2011 General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Free tax calculator 2011 Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Free tax calculator 2011 If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Free tax calculator 2011 Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Free tax calculator 2011 Price reduced after purchase. Free tax calculator 2011   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Free tax calculator 2011 Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Free tax calculator 2011 Deductible debt. Free tax calculator 2011   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Free tax calculator 2011 Example. Free tax calculator 2011 You get accounting services for your business on credit. Free tax calculator 2011 Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Free tax calculator 2011 Your accountant forgives part of the amount you owe for the accounting services. Free tax calculator 2011 How you treat the canceled debt depends on your method of accounting. Free tax calculator 2011 Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Free tax calculator 2011 Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Free tax calculator 2011   For information on the cash and accrual methods of accounting, see chapter 2. Free tax calculator 2011 Exclusions Do not include canceled debt in income in the following situations. Free tax calculator 2011 However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Free tax calculator 2011 For more information, see Form 982. Free tax calculator 2011 The cancellation takes place in a bankruptcy case under title 11 of the U. Free tax calculator 2011 S. Free tax calculator 2011 Code (relating to bankruptcy). Free tax calculator 2011 See Publication 908, Bankruptcy Tax Guide. Free tax calculator 2011 The cancellation takes place when you are insolvent. Free tax calculator 2011 You can exclude the canceled debt to the extent you are insolvent. Free tax calculator 2011 See Publication 908. Free tax calculator 2011 The canceled debt is a qualified farm debt owed to a qualified person. Free tax calculator 2011 See chapter 3 in Publication 225, Farmer's Tax Guide. Free tax calculator 2011 The canceled debt is a qualified real property business debt. Free tax calculator 2011 This situation is explained later. Free tax calculator 2011 The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Free tax calculator 2011 See Form 982. Free tax calculator 2011 If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Free tax calculator 2011 If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Free tax calculator 2011 Debt. Free tax calculator 2011   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Free tax calculator 2011 Qualified real property business debt. Free tax calculator 2011   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Free tax calculator 2011 If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Free tax calculator 2011 Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Free tax calculator 2011 However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Free tax calculator 2011 Cancellation of qualified real property business debt. Free tax calculator 2011   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Free tax calculator 2011 It was incurred or assumed in connection with real property used in a trade or business. Free tax calculator 2011 It was secured by such real property. Free tax calculator 2011 It was incurred or assumed at either of the following times. Free tax calculator 2011 Before January 1, 1993. Free tax calculator 2011 After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Free tax calculator 2011 It is debt to which you choose to apply these rules. Free tax calculator 2011   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Free tax calculator 2011   You cannot exclude more than either of the following amounts. Free tax calculator 2011 The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Free tax calculator 2011 The total adjusted bases of depreciable real property held by you immediately before the cancellation. Free tax calculator 2011 These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Free tax calculator 2011 Do not take into account depreciable real property acquired in contemplation of the cancellation. Free tax calculator 2011 Election. Free tax calculator 2011   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Free tax calculator 2011 You must file your return by the due date (including extensions). Free tax calculator 2011 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free tax calculator 2011 For more information, see When To File in the form instructions. Free tax calculator 2011 Other Income The following discussion explains how to treat other types of business income you may receive. Free tax calculator 2011 Restricted property. Free tax calculator 2011   Restricted property is property that has certain restrictions that affect its value. Free tax calculator 2011 If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Free tax calculator 2011 However, you can choose to be taxed in the year you receive the property. Free tax calculator 2011 For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Free tax calculator 2011 Gains and losses. Free tax calculator 2011   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Free tax calculator 2011 Instead, you must report these gains and losses on other forms. Free tax calculator 2011 For more information, see chapter 3. Free tax calculator 2011 Promissory notes. Free tax calculator 2011   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Free tax calculator 2011 In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Free tax calculator 2011 Lost income payments. Free tax calculator 2011   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Free tax calculator 2011 Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Free tax calculator 2011 Damages. Free tax calculator 2011   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Free tax calculator 2011 Patent infringement. Free tax calculator 2011 Breach of contract or fiduciary duty. Free tax calculator 2011 Antitrust injury. Free tax calculator 2011 Economic injury. Free tax calculator 2011   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Free tax calculator 2011 Your deduction is the smaller of the following amounts. Free tax calculator 2011 The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Free tax calculator 2011 Your loss from the injury that you have not yet deducted. Free tax calculator 2011 Punitive damages. Free tax calculator 2011   You must also include punitive damages in income. Free tax calculator 2011 Kickbacks. Free tax calculator 2011   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Free tax calculator 2011 However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Free tax calculator 2011 Recovery of items previously deducted. Free tax calculator 2011   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Free tax calculator 2011 However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Free tax calculator 2011 If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Free tax calculator 2011 Example. Free tax calculator 2011 Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Free tax calculator 2011 He also had 2 personal exemptions for a total of $7,800. Free tax calculator 2011 He would not pay income tax even if he did not deduct the bad debt. Free tax calculator 2011 Therefore, he will not report as income any part of the $300 he may recover in any future year. Free tax calculator 2011 Exception for depreciation. Free tax calculator 2011   This rule does not apply to depreciation. Free tax calculator 2011 You recover depreciation using the rules explained next. Free tax calculator 2011 Recapture of depreciation. Free tax calculator 2011   In the following situations, you have to recapture the depreciation deduction. Free tax calculator 2011 This means you include in income part or all of the depreciation you deducted in previous years. Free tax calculator 2011 Listed property. Free tax calculator 2011   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Free tax calculator 2011 You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Free tax calculator 2011 Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Free tax calculator 2011 For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Free tax calculator 2011 That chapter explains how to determine whether property is used more than 50% in your business. Free tax calculator 2011 Section 179 property. Free tax calculator 2011   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Free tax calculator 2011 You do this by including in income on Schedule C part of the deduction you took. Free tax calculator 2011 Use Part IV of Form 4797 to figure the amount to include on Schedule C. Free tax calculator 2011 See chapter 2 in Publication 946 to find out when you recapture the deduction. Free tax calculator 2011 Sale or exchange of depreciable property. Free tax calculator 2011   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Free tax calculator 2011 You figure the income due to depreciation recapture in Part III of Form 4797. Free tax calculator 2011 For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Free tax calculator 2011 Items That Are Not Income In some cases the property or money you receive is not income. Free tax calculator 2011 Appreciation. Free tax calculator 2011   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Free tax calculator 2011 Consignments. Free tax calculator 2011   Consignments of merchandise to others to sell for you are not sales. Free tax calculator 2011 The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Free tax calculator 2011 Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Free tax calculator 2011 Merchandise you have shipped out on consignment is included in your inventory until it is sold. Free tax calculator 2011   Do not include merchandise you receive on consignment in your inventory. Free tax calculator 2011 Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Free tax calculator 2011 Construction allowances. Free tax calculator 2011   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Free tax calculator 2011 Under a short-term lease of retail space. Free tax calculator 2011 For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Free tax calculator 2011 Amount you can exclude. Free tax calculator 2011   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Free tax calculator 2011 Short-term lease. Free tax calculator 2011   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Free tax calculator 2011 The following rules apply in determining whether the lease is for 15 years or less. Free tax calculator 2011 Take into account options to renew when figuring whether the lease is for 15 years or less. Free tax calculator 2011 But do not take into account any option to renew at fair market value determined at the time of renewal. Free tax calculator 2011 Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Free tax calculator 2011 Retail space. Free tax calculator 2011   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Free tax calculator 2011 Qualified long-term real property. Free tax calculator 2011   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Free tax calculator 2011 Exchange of like-kind property. Free tax calculator 2011   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Free tax calculator 2011 This means that the gain is not taxable and the loss is not deductible. Free tax calculator 2011 A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Free tax calculator 2011 For more information, see Form 8824. Free tax calculator 2011 Leasehold improvements. Free tax calculator 2011   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Free tax calculator 2011 However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Free tax calculator 2011 Loans. Free tax calculator 2011   Money borrowed through a bona fide loan is not income. Free tax calculator 2011 Sales tax. Free tax calculator 2011   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Free tax calculator 2011 Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Free tax calculator 2011 Direct seller. Free tax calculator 2011   You must report all income you receive as a direct seller on Schedule C or C-EZ. Free tax calculator 2011 This includes any of the following. Free tax calculator 2011 Income from sales—payments you receive from customers for products they buy from you. Free tax calculator 2011 Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Free tax calculator 2011 Prizes, awards, and gifts you receive from your selling business. Free tax calculator 2011 You must report this income regardless of whether it is reported to you on an information return. Free tax calculator 2011   You are a direct seller if you meet all the following conditions. Free tax calculator 2011 You are engaged in one of the following trades or businesses. Free tax calculator 2011 Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Free tax calculator 2011 Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Free tax calculator 2011 Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Free tax calculator 2011 Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Free tax calculator 2011 Executor or administrator. Free tax calculator 2011   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Free tax calculator 2011 A nonprofessional fiduciary (personal representative) and both of the following apply. Free tax calculator 2011 The estate includes an active trade or business in which you actively participate. Free tax calculator 2011 Your fees are related to the operation of that trade or business. Free tax calculator 2011 A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Free tax calculator 2011    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Free tax calculator 2011 Fishing crew member. Free tax calculator 2011    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Free tax calculator 2011 Insurance agent, former. Free tax calculator 2011   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Free tax calculator 2011 You received payments after your agreement to perform services for the company ended. Free tax calculator 2011 You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Free tax calculator 2011 You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Free tax calculator 2011 The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Free tax calculator 2011 The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Free tax calculator 2011 Insurance agent, retired. Free tax calculator 2011   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Free tax calculator 2011 Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Free tax calculator 2011   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Free tax calculator 2011 Newspaper carrier or distributor. Free tax calculator 2011   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free tax calculator 2011 You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Free tax calculator 2011 Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Free tax calculator 2011 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free tax calculator 2011   This rule applies whether or not you hire others to help you make deliveries. Free tax calculator 2011 It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Free tax calculator 2011 Newspaper or magazine vendor. Free tax calculator 2011   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free tax calculator 2011 You sell newspapers or magazines to ultimate consumers. Free tax calculator 2011 You sell them at a fixed price. Free tax calculator 2011 Your earnings are based on the difference between the sales price and your cost of goods sold. Free tax calculator 2011   This rule applies whether or not you are guaranteed a minimum amount of earnings. Free tax calculator 2011 It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Free tax calculator 2011 Notary public. Free tax calculator 2011   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Free tax calculator 2011 These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Free tax calculator 2011 Public official. Free tax calculator 2011   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Free tax calculator 2011 This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Free tax calculator 2011 Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Free tax calculator 2011   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Free tax calculator 2011 Real estate agent or direct seller. Free tax calculator 2011   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Free tax calculator 2011 Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Free tax calculator 2011 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free tax calculator 2011 Securities dealer. Free tax calculator 2011   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Free tax calculator 2011 For more information, see sections 1256 and 1402(i). Free tax calculator 2011 Securities trader. Free tax calculator 2011   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Free tax calculator 2011 As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Free tax calculator 2011 However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Free tax calculator 2011 For more information about securities traders, see Publication 550, Investment Income and Expenses. Free tax calculator 2011 Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Free tax calculator 2011 This section discusses some of the more common differences that may affect business transactions. Free tax calculator 2011 Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Free tax calculator 2011 If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Free tax calculator 2011 Dealers in real estate are not allowed to use inventories. Free tax calculator 2011 For more information on inventories, see chapter 2. Free tax calculator 2011 Income paid to a third party. Free tax calculator 2011   All income you earn is taxable to you. Free tax calculator 2011 You cannot avoid tax by having the income paid to a third party. Free tax calculator 2011 Example. Free tax calculator 2011 You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Free tax calculator 2011 The amount paid to your son is gross income to you. Free tax calculator 2011 Cash discounts. Free tax calculator 2011   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Free tax calculator 2011 For income tax purposes, you can use either of the following two methods to account for cash discounts. Free tax calculator 2011 Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Free tax calculator 2011 Credit the cash discount to a discount income account. Free tax calculator 2011 You must use the chosen method every year for all your purchase discounts. Free tax calculator 2011   If you use the second method, the credit balance in the account at the end of your tax year is business income. Free tax calculator 2011 Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Free tax calculator 2011 When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Free tax calculator 2011 Trade discounts. Free tax calculator 2011   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Free tax calculator 2011 Do not enter these discounts on your books of account. Free tax calculator 2011 Instead, use only the net amount as the cost of the merchandise purchased. Free tax calculator 2011 For more information, see Trade discounts in chapter 6. Free tax calculator 2011 Payment placed in escrow. Free tax calculator 2011   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Free tax calculator 2011 However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Free tax calculator 2011 Sales returns and allowances. Free tax calculator 2011   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Free tax calculator 2011 Advance payments. Free tax calculator 2011   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Free tax calculator 2011 Insurance proceeds. Free tax calculator 2011   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Free tax calculator 2011 You cannot deduct the reimbursed part of a casualty or theft loss. Free tax calculator 2011   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Free tax calculator 2011 Prev  Up  Next   Home   More Online Publications