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H&r Block Military Taxes

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H&r Block Military Taxes

H&r block military taxes 22. H&r block military taxes   Taxes Table of Contents IntroductionIndian tribal government. H&r block military taxes Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. H&r block military taxes Real Estate TaxesReal estate taxes for prior years. H&r block military taxes Examples. H&r block military taxes Form 1099-S. H&r block military taxes Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). H&r block military taxes It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. H&r block military taxes This chapter covers the following topics. H&r block military taxes Income taxes (federal, state, local, and foreign). H&r block military taxes General sales taxes (state and local). H&r block military taxes Real estate taxes (state, local, and foreign). H&r block military taxes Personal property taxes (state and local). H&r block military taxes Taxes and fees you cannot deduct. H&r block military taxes Use Table 22-1 as a guide to determine which taxes you can deduct. H&r block military taxes The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. H&r block military taxes Business taxes. H&r block military taxes   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. H&r block military taxes For information on these taxes, see Publication 535, Business Expenses. H&r block military taxes State or local taxes. H&r block military taxes   These are taxes imposed by the 50 states, U. H&r block military taxes S. H&r block military taxes possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. H&r block military taxes Indian tribal government. H&r block military taxes   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. H&r block military taxes Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. H&r block military taxes General sales taxes. H&r block military taxes   These are taxes imposed at one rate on retail sales of a broad range of classes of items. H&r block military taxes Foreign taxes. H&r block military taxes   These are taxes imposed by a foreign country or any of its political subdivisions. H&r block military taxes Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. H&r block military taxes The tax must be imposed on you. H&r block military taxes You must pay the tax during your tax year. H&r block military taxes The tax must be imposed on you. H&r block military taxes   In general, you can deduct only taxes imposed on you. H&r block military taxes   Generally, you can deduct property taxes only if you are an owner of the property. H&r block military taxes If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. H&r block military taxes You must pay the tax during your tax year. H&r block military taxes   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. H&r block military taxes If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. H&r block military taxes If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. H&r block military taxes If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). H&r block military taxes See Publication 538, Accounting Periods and Methods, for details. H&r block military taxes    If you use an accrual method of accounting, see Publication 538 for more information. H&r block military taxes Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. H&r block military taxes State and Local Income Taxes You can deduct state and local income taxes. H&r block military taxes However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. H&r block military taxes See General Sales Taxes , later. H&r block military taxes Exception. H&r block military taxes    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. H&r block military taxes For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. H&r block military taxes What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. H&r block military taxes Withheld taxes. H&r block military taxes   You can deduct state and local income taxes withheld from your salary in the year they are withheld. H&r block military taxes Your Form(s) W-2 will show these amounts. H&r block military taxes Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. H&r block military taxes Estimated tax payments. H&r block military taxes   You can deduct estimated tax payments you made during the year to a state or local government. H&r block military taxes However, you must have a reasonable basis for making the estimated tax payments. H&r block military taxes Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. H&r block military taxes For example, you made an estimated state income tax payment. H&r block military taxes However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. H&r block military taxes You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. H&r block military taxes Refund applied to taxes. H&r block military taxes   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. H&r block military taxes    Do not reduce your deduction by either of the following items. H&r block military taxes Any state or local income tax refund (or credit) you expect to receive for 2013. H&r block military taxes Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. H&r block military taxes   However, part or all of this refund (or credit) may be taxable. H&r block military taxes See Refund (or credit) of state or local income taxes , later. H&r block military taxes Separate federal returns. H&r block military taxes   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. H&r block military taxes Joint state and local returns. H&r block military taxes   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. H&r block military taxes You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. H&r block military taxes However, you cannot deduct more than the amount you actually paid during the year. H&r block military taxes You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. H&r block military taxes If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. H&r block military taxes Joint federal return. H&r block military taxes   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. H&r block military taxes Contributions to state benefit funds. H&r block military taxes    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. H&r block military taxes For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. H&r block military taxes Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. H&r block military taxes Alaska Unemployment Compensation Fund. H&r block military taxes California Nonoccupational Disability Benefit Fund. H&r block military taxes New Jersey Nonoccupational Disability Benefit Fund. H&r block military taxes New Jersey Unemployment Compensation Fund. H&r block military taxes New York Nonoccupational Disability Benefit Fund. H&r block military taxes Pennsylvania Unemployment Compensation Fund. H&r block military taxes Rhode Island Temporary Disability Benefit Fund. H&r block military taxes Washington State Supplemental Workmen's Compensation Fund. H&r block military taxes    Employee contributions to private or voluntary disability plans are not deductible. H&r block military taxes Refund (or credit) of state or local income taxes. H&r block military taxes   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. H&r block military taxes This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. H&r block military taxes If you did not itemize your deductions in the previous year, do not include the refund in income. H&r block military taxes If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. H&r block military taxes For a discussion of how much to include, see Recoveries in chapter 12. H&r block military taxes Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. H&r block military taxes S. H&r block military taxes possession. H&r block military taxes However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. H&r block military taxes S. H&r block military taxes tax under the foreign earned income exclusion or the foreign housing exclusion. H&r block military taxes For information on these exclusions, see Publication 54, Tax Guide for U. H&r block military taxes S. H&r block military taxes Citizens and Resident Aliens Abroad. H&r block military taxes For information on the foreign tax credit, see Publication 514. H&r block military taxes General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. H&r block military taxes You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. H&r block military taxes Actual expenses. H&r block military taxes   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. H&r block military taxes However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. H&r block military taxes If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. H&r block military taxes If you use the actual expenses method, you must have receipts to show the general sales taxes paid. H&r block military taxes Do not include sales taxes paid on items used in your trade or business. H&r block military taxes Motor vehicles. H&r block military taxes   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. H&r block military taxes This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. H&r block military taxes Optional sales tax tables. H&r block military taxes   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). H&r block military taxes You may also be able to add the state and local general sales taxes paid on certain specified items. H&r block military taxes   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. H&r block military taxes Your income is your adjusted gross income plus any nontaxable items such as the following. H&r block military taxes Tax-exempt interest. H&r block military taxes Veterans' benefits. H&r block military taxes Nontaxable combat pay. H&r block military taxes Workers' compensation. H&r block military taxes Nontaxable part of social security and railroad retirement benefits. H&r block military taxes Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. H&r block military taxes Public assistance payments. H&r block military taxes If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. H&r block military taxes See the Instructions for Schedule A (Form 1040), line 5, for details. H&r block military taxes Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. H&r block military taxes You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. H&r block military taxes Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. H&r block military taxes They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. H&r block military taxes For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. H&r block military taxes Tenant-shareholders in a cooperative housing corporation. H&r block military taxes   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. H&r block military taxes The corporation should provide you with a statement showing your share of the taxes. H&r block military taxes For more information, see Special Rules for Cooperatives in Publication 530. H&r block military taxes Division of real estate taxes between buyers and sellers. H&r block military taxes   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. H&r block military taxes   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. H&r block military taxes The seller is treated as paying the taxes up to, but not including, the date of sale. H&r block military taxes The buyer is treated as paying the taxes beginning with the date of sale. H&r block military taxes This applies regardless of the lien dates under local law. H&r block military taxes Generally, this information is included on the settlement statement provided at the closing. H&r block military taxes    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. H&r block military taxes This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. H&r block military taxes However, you must also include the amount of that tax in the selling price of the property. H&r block military taxes The buyer must include the same amount in his or her cost of the property. H&r block military taxes   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. H&r block military taxes Worksheet 22-1. H&r block military taxes Figuring Your Real Estate Tax Deduction 1. H&r block military taxes Enter the total real estate taxes for the real property tax year   2. H&r block military taxes Enter the number of days in the real property tax year that you owned the property   3. H&r block military taxes Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block military taxes 4. H&r block military taxes Multiply line 1 by line 3. H&r block military taxes This is your deduction. H&r block military taxes Enter it on Schedule A (Form 1040), line 6   Note. H&r block military taxes Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. H&r block military taxes Your total deduction is the sum of the line 4 amounts for all of the properties. H&r block military taxes Real estate taxes for prior years. H&r block military taxes   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. H&r block military taxes Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. H&r block military taxes The buyer must add them to the cost of the property. H&r block military taxes The seller can deduct these taxes paid by the buyer. H&r block military taxes However, the seller must include them in the selling price. H&r block military taxes Examples. H&r block military taxes   The following examples illustrate how real estate taxes are divided between buyer and seller. H&r block military taxes Example 1. H&r block military taxes Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. H&r block military taxes The tax on their old home, sold on May 7, was $620. H&r block military taxes The tax on their new home, bought on May 3, was $732. H&r block military taxes Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. H&r block military taxes On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. H&r block military taxes Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). H&r block military taxes They figure their deduction for taxes on their old home as follows. H&r block military taxes Worksheet 22-1. H&r block military taxes Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. H&r block military taxes Enter the total real estate taxes for the real property tax year $620 2. H&r block military taxes Enter the number of days in the real property tax year that you owned the property 126 3. H&r block military taxes Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block military taxes 3452 4. H&r block military taxes Multiply line 1 by line 3. H&r block military taxes This is your deduction. H&r block military taxes Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. H&r block military taxes (The buyers add the $214 to their cost of the home. H&r block military taxes ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). H&r block military taxes They figure their deduction for taxes on their new home as follows. H&r block military taxes Worksheet 22-1. H&r block military taxes Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. H&r block military taxes Enter the total real estate taxes for the real property tax year $732 2. H&r block military taxes Enter the number of days in the real property tax year that you owned the property 243 3. H&r block military taxes Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block military taxes 6658 4. H&r block military taxes Multiply line 1 by line 3. H&r block military taxes This is your deduction. H&r block military taxes Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. H&r block military taxes (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. H&r block military taxes ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. H&r block military taxes They will enter this amount on Schedule A (Form 1040), line 6. H&r block military taxes Example 2. H&r block military taxes George and Helen Brown bought a new home on May 3, 2013. H&r block military taxes Their real property tax year for the new home is the calendar year. H&r block military taxes Real estate taxes for 2012 were assessed in their state on January 1, 2013. H&r block military taxes The taxes became due on May 31, 2013, and October 31, 2013. H&r block military taxes The Browns agreed to pay all taxes due after the date of purchase. H&r block military taxes Real estate taxes for 2012 were $680. H&r block military taxes They paid $340 on May 31, 2013, and $340 on October 31, 2013. H&r block military taxes These taxes were for the 2012 real property tax year. H&r block military taxes The Browns cannot deduct them since they did not own the property until 2013. H&r block military taxes Instead, they must add $680 to the cost of their new home. H&r block military taxes In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. H&r block military taxes The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). H&r block military taxes They will figure their 2014 deduction for taxes as follows. H&r block military taxes Worksheet 22-1. H&r block military taxes Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. H&r block military taxes Enter the total real estate taxes for the real property tax year $752 2. H&r block military taxes Enter the number of days in the real property tax year that you owned the property 243 3. H&r block military taxes Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block military taxes 6658 4. H&r block military taxes Multiply line 1 by line 3. H&r block military taxes This is your deduction. H&r block military taxes Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. H&r block military taxes Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. H&r block military taxes This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. H&r block military taxes The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. H&r block military taxes The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. H&r block military taxes Form 1099-S. H&r block military taxes   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. H&r block military taxes Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. H&r block military taxes The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. H&r block military taxes   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. H&r block military taxes The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. H&r block military taxes See Refund (or rebate) , later. H&r block military taxes Taxes placed in escrow. H&r block military taxes   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. H&r block military taxes You can deduct only the real estate tax that the third party actually paid to the taxing authority. H&r block military taxes If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. H&r block military taxes Tenants by the entirety. H&r block military taxes   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. H&r block military taxes Divorced individuals. H&r block military taxes   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. H&r block military taxes See Taxes and insurance in chapter 18 for more information. H&r block military taxes Ministers' and military housing allowances. H&r block military taxes   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. H&r block military taxes Refund (or rebate). H&r block military taxes   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. H&r block military taxes If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. H&r block military taxes However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. H&r block military taxes For more information, see Recoveries in chapter 12. H&r block military taxes Table 22-1. H&r block military taxes Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. H&r block military taxes Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). H&r block military taxes     Fines and penalties. H&r block military taxes Income Taxes State and local income taxes. H&r block military taxes Federal income taxes. H&r block military taxes   Foreign income taxes. H&r block military taxes     Employee contributions to state funds listed under Contributions to state benefit funds . H&r block military taxes Employee contributions to private or voluntary disability plans. H&r block military taxes     State and local general sales taxes if you choose to deduct state and local income taxes. H&r block military taxes General Sales Taxes State and local general sales taxes, including compensating use taxes. H&r block military taxes State and local income taxes if you choose to deduct state and local general sales taxes. H&r block military taxes Other Taxes Taxes that are expenses of your trade or business. H&r block military taxes Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. H&r block military taxes   Taxes on property producing rent or royalty income. H&r block military taxes Per capita taxes. H&r block military taxes   Occupational taxes. H&r block military taxes See chapter 28. H&r block military taxes     One-half of self-employment tax paid. H&r block military taxes   Personal Property Taxes State and local personal property taxes. H&r block military taxes Customs duties that are not expenses of your trade or business or of producing income. H&r block military taxes Real Estate Taxes State and local real estate taxes. H&r block military taxes Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). H&r block military taxes   Foreign real estate taxes. H&r block military taxes Taxes for local benefits (with exceptions). H&r block military taxes See Real Estate-Related Items You Cannot Deduct . H&r block military taxes   Tenant's share of real estate taxes paid by  cooperative housing corporation. H&r block military taxes Trash and garbage pickup fees (with exceptions). H&r block military taxes See Real Estate-Related Items You Cannot Deduct . H&r block military taxes     Rent increase due to higher real estate taxes. H&r block military taxes     Homeowners' association charges. H&r block military taxes Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. H&r block military taxes Taxes for local benefits. H&r block military taxes Itemized charges for services (such as trash and garbage pickup fees). H&r block military taxes Transfer taxes (or stamp taxes). H&r block military taxes Rent increases due to higher real estate taxes. H&r block military taxes Homeowners' association charges. H&r block military taxes Taxes for local benefits. H&r block military taxes   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. H&r block military taxes These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. H&r block military taxes You should increase the basis of your property by the amount of the assessment. H&r block military taxes   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. H&r block military taxes If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. H&r block military taxes If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. H&r block military taxes    Taxes for local benefits may be included in your real estate tax bill. H&r block military taxes If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. H&r block military taxes You should use the rules above to determine if the local benefit tax is deductible. H&r block military taxes Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. H&r block military taxes Itemized charges for services. H&r block military taxes    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. H&r block military taxes For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). H&r block military taxes    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. H&r block military taxes If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. H&r block military taxes Exception. H&r block military taxes   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. H&r block military taxes Transfer taxes (or stamp taxes). H&r block military taxes   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. H&r block military taxes If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. H&r block military taxes If paid by the buyer, they are included in the cost basis of the property. H&r block military taxes Rent increase due to higher real estate taxes. H&r block military taxes   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. H&r block military taxes Homeowners' association charges. H&r block military taxes   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. H&r block military taxes Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. H&r block military taxes A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. H&r block military taxes For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. H&r block military taxes If the tax is partly based on value and partly based on other criteria, it may qualify in part. H&r block military taxes Example. H&r block military taxes Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. H&r block military taxes You paid $32 based on the value ($1,500) and weight (3,400 lbs. H&r block military taxes ) of your car. H&r block military taxes You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. H&r block military taxes The remaining $17 ($. H&r block military taxes 50 × 34), based on the weight, is not deductible. H&r block military taxes Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. H&r block military taxes Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. H&r block military taxes See Table 22-1. H&r block military taxes Taxes and fees that are generally not deductible include the following items. H&r block military taxes Employment taxes. H&r block military taxes This includes social security, Medicare, and railroad retirement taxes withheld from your pay. H&r block military taxes However, one-half of self-employment tax you pay is deductible. H&r block military taxes In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. H&r block military taxes For more information, see chapters 21 and 32. H&r block military taxes Estate, inheritance, legacy, or succession taxes. H&r block military taxes However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. H&r block military taxes In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. H&r block military taxes For more information, see Publication 559, Survivors, Executors, and Administrators. H&r block military taxes Federal income taxes. H&r block military taxes This includes income taxes withheld from your pay. H&r block military taxes Fines and penalties. H&r block military taxes You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. H&r block military taxes Gift taxes. H&r block military taxes License fees. H&r block military taxes You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). H&r block military taxes Per capita taxes. H&r block military taxes You cannot deduct state or local per capita taxes. H&r block military taxes Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. H&r block military taxes For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. H&r block military taxes Where To Deduct You deduct taxes on the following schedules. H&r block military taxes State and local income taxes. H&r block military taxes    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. H&r block military taxes Check box a on line 5. H&r block military taxes General sales taxes. H&r block military taxes   Sales taxes are deducted on Schedule A (Form 1040), line 5. H&r block military taxes You must check box b on line 5. H&r block military taxes If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. H&r block military taxes Foreign income taxes. H&r block military taxes   Generally, income taxes you pay to a foreign country or U. H&r block military taxes S. H&r block military taxes possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. H&r block military taxes S. H&r block military taxes income tax on Form 1040, line 47. H&r block military taxes To claim the credit, you may have to complete and attach Form 1116. H&r block military taxes For more information, see chapter 37, the Form 1040 instructions, or Publication 514. H&r block military taxes Real estate taxes and personal property taxes. H&r block military taxes    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). H&r block military taxes Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). H&r block military taxes Self-employment tax. H&r block military taxes    Deduct one-half of your self-employment tax on Form 1040, line 27. H&r block military taxes Other taxes. H&r block military taxes    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. 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The H&r Block Military Taxes

H&r block military taxes 5. H&r block military taxes   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. H&r block military taxes Making the election. H&r block military taxes Form 3115. H&r block military taxes Income TaxesAccrual of contested income taxes. H&r block military taxes Employment Taxes Other TaxesAdditional Medicare Tax. H&r block military taxes What's New Additional Medicare Tax. H&r block military taxes  Beginning in 2013, you must withhold a 0. H&r block military taxes 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. H&r block military taxes Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. H&r block military taxes See Employment Taxes , and Self-employment tax , later. H&r block military taxes Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. H&r block military taxes You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. H&r block military taxes Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. H&r block military taxes When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. H&r block military taxes This applies whether you use the cash method or an accrual method of accounting. H&r block military taxes Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. H&r block military taxes You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . H&r block military taxes Limit on accrual of taxes. H&r block military taxes   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. H&r block military taxes However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. H&r block military taxes Example. H&r block military taxes Your state imposes a tax on personal property used in a trade or business conducted in the state. H&r block military taxes This tax is assessed and becomes a lien as of July 1 (accrual date). H&r block military taxes In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. H&r block military taxes Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. H&r block military taxes You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. H&r block military taxes Uniform capitalization rules. H&r block military taxes   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. H&r block military taxes They also apply to certain taxpayers who acquire property for resale. H&r block military taxes Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. H&r block military taxes For more information, see chapter 1. H&r block military taxes Carrying charges. H&r block military taxes   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. H&r block military taxes You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. H&r block military taxes For more information, see chapter 7. H&r block military taxes Refunds of taxes. H&r block military taxes   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. H&r block military taxes For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. H&r block military taxes    You must include in income any interest you receive on tax refunds. H&r block military taxes Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. H&r block military taxes The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. H&r block military taxes Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. H&r block military taxes See Taxes for local benefits , later. H&r block military taxes If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. H&r block military taxes However, you can elect to ratably accrue the taxes during the year. H&r block military taxes See Electing to ratably accrue , later. H&r block military taxes Taxes for local benefits. H&r block military taxes   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. H&r block military taxes These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. H&r block military taxes You should increase the basis of your property by the amount of the assessment. H&r block military taxes   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. H&r block military taxes If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. H&r block military taxes Example. H&r block military taxes To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. H&r block military taxes The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. H&r block military taxes The city is paying the principal and interest with the annual payments made by the property owners. H&r block military taxes The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. H&r block military taxes The part of the payments used to pay the interest charges on the bonds is deductible as taxes. H&r block military taxes Charges for services. H&r block military taxes   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. H&r block military taxes Purchase or sale of real estate. H&r block military taxes   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. H&r block military taxes   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. H&r block military taxes Treat the seller as paying the taxes up to but not including the date of sale. H&r block military taxes Treat the buyer as paying the taxes beginning with the date of sale. H&r block military taxes You can usually find this information on the settlement statement you received at closing. H&r block military taxes   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. H&r block military taxes Example. H&r block military taxes Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. H&r block military taxes He has not elected to ratably accrue property taxes. H&r block military taxes November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. H&r block military taxes He sold the property on June 30, 2013. H&r block military taxes Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. H&r block military taxes He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. H&r block military taxes Electing to ratably accrue. H&r block military taxes   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. H&r block military taxes Example. H&r block military taxes Juan Sanchez is a calendar year taxpayer who uses an accrual method. H&r block military taxes His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. H&r block military taxes July 1 is the assessment and lien date. H&r block military taxes If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. H&r block military taxes Separate elections. H&r block military taxes   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. H&r block military taxes Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. H&r block military taxes See Form 3115 , later. H&r block military taxes Making the election. H&r block military taxes   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. H&r block military taxes The statement should show all the following items. H&r block military taxes The trades or businesses to which the election applies and the accounting method or methods used. H&r block military taxes The period to which the taxes relate. H&r block military taxes The computation of the real estate tax deduction for that first year. H&r block military taxes   Generally, you must file your return by the due date (including extensions). H&r block military taxes However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). H&r block military taxes Attach the statement to the amended return and write “Filed pursuant to section 301. H&r block military taxes 9100-2” on the statement. H&r block military taxes File the amended return at the same address where you filed the original return. H&r block military taxes Form 3115. H&r block military taxes    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. H&r block military taxes For more information, including applicable time frames for filing, see the Instructions for Form 3115. H&r block military taxes Note. H&r block military taxes If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. H&r block military taxes R. H&r block military taxes B. H&r block military taxes 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. H&r block military taxes R. H&r block military taxes B. H&r block military taxes 689, and Revenue Procedure 2012-20, 2012-14 I. H&r block military taxes R. H&r block military taxes B. H&r block military taxes 700, or any successor. H&r block military taxes Revenue Procedure 2011-14 is available at  www. H&r block military taxes irs. H&r block military taxes gov/irb/2011-04IRB/ar08. H&r block military taxes html. H&r block military taxes Income Taxes This section discusses federal, state, local, and foreign income taxes. H&r block military taxes Federal income taxes. H&r block military taxes   You cannot deduct federal income taxes. H&r block military taxes State and local income taxes. H&r block military taxes   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. H&r block military taxes An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). H&r block military taxes   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. H&r block military taxes Accrual of contested income taxes. H&r block military taxes   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. H&r block military taxes   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. H&r block military taxes You cannot deduct them in the year in which the liability is finally determined. H&r block military taxes    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. H&r block military taxes Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. H&r block military taxes   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. H&r block military taxes You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. H&r block military taxes For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. H&r block military taxes Foreign income taxes. H&r block military taxes   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. H&r block military taxes S. H&r block military taxes possession. H&r block military taxes However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. H&r block military taxes S. H&r block military taxes tax under the foreign earned income exclusion or the foreign housing exclusion. H&r block military taxes For information on these exclusions, see Publication 54, Tax Guide for U. H&r block military taxes S. H&r block military taxes Citizens and Resident Aliens Abroad. H&r block military taxes For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. H&r block military taxes Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. H&r block military taxes Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. H&r block military taxes You may also need to pay certain employment taxes from your own funds. H&r block military taxes These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. H&r block military taxes Note. H&r block military taxes Additional Medicare Tax is only imposed on the employee. H&r block military taxes There is no employer share of Additional Medicare Tax. H&r block military taxes Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. H&r block military taxes You can deduct the employment taxes you must pay from your own funds as taxes. H&r block military taxes Example. H&r block military taxes You pay your employee $18,000 a year. H&r block military taxes However, after you withhold various taxes, your employee receives $14,500. H&r block military taxes You also pay an additional $1,500 in employment taxes. H&r block military taxes You should deduct the full $18,000 as wages. H&r block military taxes You can deduct the $1,500 you pay from your own funds as taxes. H&r block military taxes For more information on employment taxes, see Publication 15 (Circular E). H&r block military taxes Unemployment fund taxes. H&r block military taxes   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. H&r block military taxes Deduct these payments as taxes. H&r block military taxes Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. H&r block military taxes Excise taxes. H&r block military taxes   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. H&r block military taxes However, see Fuel taxes , later. H&r block military taxes   For more information on excise taxes, see Publication 510. H&r block military taxes Franchise taxes. H&r block military taxes   You can deduct corporate franchise taxes as a business expense. H&r block military taxes Fuel taxes. H&r block military taxes   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. H&r block military taxes Do not deduct these taxes as a separate item. H&r block military taxes   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. H&r block military taxes For more information, see Publication 510. H&r block military taxes Occupational taxes. H&r block military taxes   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. H&r block military taxes Personal property tax. H&r block military taxes   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. H&r block military taxes Sales tax. H&r block military taxes   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. H&r block military taxes If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. H&r block military taxes If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. H&r block military taxes If the property is depreciable, add the sales tax to the basis for depreciation. H&r block military taxes For more information on basis, see Publication 551. H&r block military taxes    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. H&r block military taxes Also, do not include these taxes in gross receipts or sales. H&r block military taxes Self-employment tax. H&r block military taxes   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. H&r block military taxes This deduction only affects your income tax. H&r block military taxes It does not affect your net earnings from self-employment or your self-employment tax. H&r block military taxes   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). H&r block military taxes   For more information on self-employment tax, see Publication 334. H&r block military taxes Additional Medicare Tax. H&r block military taxes   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. H&r block military taxes See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. H&r block military taxes Prev  Up  Next   Home   More Online Publications