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Military Tax Deduction

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Military Tax Deduction

Military tax deduction Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Military tax deduction S. Military tax deduction Taxpayer Identification NumbersUnexpected payment. Military tax deduction Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Military tax deduction Electronic reporting. Military tax deduction Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Military tax deduction S. Military tax deduction Real Property InterestForeign corporations. Military tax deduction Domestic corporations. Military tax deduction U. Military tax deduction S. Military tax deduction real property holding corporations. Military tax deduction Partnerships. Military tax deduction Trusts and estates. Military tax deduction Domestically controlled QIE. Military tax deduction Late filing of certifications or notices. Military tax deduction Certifications. Military tax deduction Liability of agent or qualified substitute. Military tax deduction Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Military tax deduction Withholding of Tax In most cases, a foreign person is subject to U. Military tax deduction S. Military tax deduction tax on its U. Military tax deduction S. Military tax deduction source income. Military tax deduction Most types of U. Military tax deduction S. Military tax deduction source income received by a foreign person are subject to U. Military tax deduction S. Military tax deduction tax of 30%. Military tax deduction A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Military tax deduction The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Military tax deduction The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Military tax deduction In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Military tax deduction S. Military tax deduction source income. Military tax deduction Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Military tax deduction NRA withholding does not include withholding under section 1445 of the Code (see U. Military tax deduction S. Military tax deduction Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Military tax deduction A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Military tax deduction However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Military tax deduction S. Military tax deduction person is not required to withhold. Military tax deduction In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Military tax deduction Withholding Agent You are a withholding agent if you are a U. Military tax deduction S. Military tax deduction or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Military tax deduction A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Military tax deduction S. Military tax deduction branch of certain foreign banks and insurance companies. Military tax deduction You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Military tax deduction Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Military tax deduction In most cases, the U. Military tax deduction S. Military tax deduction person who pays an amount subject to NRA withholding is the person responsible for withholding. Military tax deduction However, other persons may be required to withhold. Military tax deduction For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Military tax deduction In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Military tax deduction Liability for tax. Military tax deduction   As a withholding agent, you are personally liable for any tax required to be withheld. Military tax deduction This liability is independent of the tax liability of the foreign person to whom the payment is made. Military tax deduction If you fail to withhold and the foreign payee fails to satisfy its U. Military tax deduction S. Military tax deduction tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Military tax deduction   The applicable tax will be collected only once. Military tax deduction If the foreign person satisfies its U. Military tax deduction S. Military tax deduction tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Military tax deduction Determination of amount to withhold. Military tax deduction   You must withhold on the gross amount subject to NRA withholding. Military tax deduction You cannot reduce the gross amount by any deductions. Military tax deduction However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Military tax deduction   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Military tax deduction In no case, however, should you withhold more than 30% of the total amount paid. Military tax deduction Or, you may make a reasonable estimate of the amount from U. Military tax deduction S. Military tax deduction sources and put a corresponding part of the amount due in escrow until the amount from U. Military tax deduction S. Military tax deduction sources can be determined, at which time withholding becomes due. Military tax deduction When to withhold. Military tax deduction   Withholding is required at the time you make a payment of an amount subject to withholding. Military tax deduction A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Military tax deduction A payment is considered made to a person if it is paid for that person's benefit. Military tax deduction For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Military tax deduction A payment also is considered made to a person if it is made to that person's agent. Military tax deduction   A U. Military tax deduction S. Military tax deduction partnership should withhold when any distributions that include amounts subject to withholding are made. Military tax deduction However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Military tax deduction S. Military tax deduction partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Military tax deduction If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Military tax deduction A U. Military tax deduction S. Military tax deduction trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Military tax deduction To the extent a U. Military tax deduction S. Military tax deduction trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Military tax deduction Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Military tax deduction (See Returns Required , later. Military tax deduction ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Military tax deduction Form 1099 reporting and backup withholding. Military tax deduction    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Military tax deduction S. Military tax deduction person. Military tax deduction You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Military tax deduction S. Military tax deduction person that is subject to Form 1099 reporting if any of the following apply. Military tax deduction The U. Military tax deduction S. Military tax deduction person has not provided its taxpayer identification number (TIN) in the manner required. Military tax deduction The IRS notifies you that the TIN furnished by the payee is incorrect. Military tax deduction There has been a notified payee underreporting. Military tax deduction There has been a payee certification failure. Military tax deduction In most cases, a TIN must be provided by a U. Military tax deduction S. Military tax deduction non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Military tax deduction A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Military tax deduction You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Military tax deduction S. Military tax deduction person. Military tax deduction For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Military tax deduction S. Military tax deduction person subject to Form 1099 reporting. Military tax deduction See Identifying the Payee , later, for more information. Military tax deduction Also see Section S. Military tax deduction Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Military tax deduction Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Military tax deduction Wages paid to employees. Military tax deduction   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Military tax deduction See Pay for Personal Services Performed , later. Military tax deduction Effectively connected income by partnerships. Military tax deduction   A withholding agent that is a partnership (whether U. Military tax deduction S. Military tax deduction or foreign) is also responsible for withholding on its income effectively connected with a U. Military tax deduction S. Military tax deduction trade or business that is allocable to foreign partners. Military tax deduction See Partnership Withholding on Effectively Connected Income , later, for more information. Military tax deduction U. Military tax deduction S. Military tax deduction real property interest. Military tax deduction   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Military tax deduction S. Military tax deduction real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Military tax deduction S. Military tax deduction real property interest to a shareholder, partner, or beneficiary that is a foreign person. Military tax deduction See U. Military tax deduction S. Military tax deduction Real Property Interest , later. Military tax deduction Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Military tax deduction It does not apply to payments made to U. Military tax deduction S. Military tax deduction persons. Military tax deduction Usually, you determine the payee's status as a U. Military tax deduction S. Military tax deduction or foreign person based on the documentation that person provides. Military tax deduction See Documentation , later. Military tax deduction However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Military tax deduction Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Military tax deduction However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Military tax deduction U. Military tax deduction S. Military tax deduction agent of foreign person. Military tax deduction   If you make a payment to a U. Military tax deduction S. Military tax deduction person and you have actual knowledge that the U. Military tax deduction S. Military tax deduction person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Military tax deduction However, if the U. Military tax deduction S. Military tax deduction person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Military tax deduction   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Military tax deduction S. Military tax deduction person and not as a payment to a foreign person. Military tax deduction You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Military tax deduction Disregarded entities. Military tax deduction   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Military tax deduction The payee of a payment made to a disregarded entity is the owner of the entity. Military tax deduction   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Military tax deduction   If the owner is a U. Military tax deduction S. Military tax deduction person, you do not apply NRA withholding. Military tax deduction However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Military tax deduction You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Military tax deduction Flow-Through Entities The payees of payments (other than income effectively connected with a U. Military tax deduction S. Military tax deduction trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Military tax deduction This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Military tax deduction Income that is, or is deemed to be, effectively connected with the conduct of a U. Military tax deduction S. Military tax deduction trade or business of a flow-through entity is treated as paid to the entity. Military tax deduction All of the following are flow-through entities. Military tax deduction A foreign partnership (other than a withholding foreign partnership). Military tax deduction A foreign simple or foreign grantor trust (other than a withholding foreign trust). Military tax deduction A fiscally transparent entity receiving income for which treaty benefits are claimed. Military tax deduction See Fiscally transparent entity , later. Military tax deduction In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Military tax deduction You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Military tax deduction You must determine whether the owners or beneficiaries of a flow-through entity are U. Military tax deduction S. Military tax deduction or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Military tax deduction You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Military tax deduction If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Military tax deduction See Documentation and Presumption Rules , later. Military tax deduction Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Military tax deduction Foreign partnerships. Military tax deduction    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Military tax deduction If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Military tax deduction However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Military tax deduction If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Military tax deduction Example 1. Military tax deduction A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Military tax deduction S. Military tax deduction citizen. Military tax deduction You make a payment of U. Military tax deduction S. Military tax deduction source interest to the partnership. Military tax deduction It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Military tax deduction S. Military tax deduction citizen. Military tax deduction The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Military tax deduction You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Military tax deduction Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Military tax deduction Report the payment to the U. Military tax deduction S. Military tax deduction citizen on Form 1099-INT. Military tax deduction Example 2. Military tax deduction A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Military tax deduction The second partnership has two partners, both nonresident alien individuals. Military tax deduction You make a payment of U. Military tax deduction S. Military tax deduction source interest to the first partnership. Military tax deduction It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Military tax deduction In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Military tax deduction The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Military tax deduction Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Military tax deduction Example 3. Military tax deduction You make a payment of U. Military tax deduction S. Military tax deduction source dividends to a withholding foreign partnership. Military tax deduction The partnership has two partners, both foreign corporations. Military tax deduction You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Military tax deduction You must treat the partnership as the payee of the dividends. Military tax deduction Foreign simple and grantor trust. Military tax deduction   A trust is foreign unless it meets both of the following tests. Military tax deduction A court within the United States is able to exercise primary supervision over the administration of the trust. Military tax deduction One or more U. Military tax deduction S. Military tax deduction persons have the authority to control all substantial decisions of the trust. Military tax deduction   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Military tax deduction A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Military tax deduction   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Military tax deduction The payees of a payment made to a foreign grantor trust are the owners of the trust. Military tax deduction However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Military tax deduction If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Military tax deduction Example. Military tax deduction A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Military tax deduction S. Military tax deduction citizen. Military tax deduction You make a payment of interest to the foreign trust. Military tax deduction It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Military tax deduction S. Military tax deduction citizen. Military tax deduction The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Military tax deduction You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Military tax deduction Report the payment to the nonresident aliens on Forms 1042-S. Military tax deduction Report the payment to the U. Military tax deduction S. Military tax deduction citizen on Form 1099-INT. Military tax deduction Fiscally transparent entity. Military tax deduction   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Military tax deduction The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Military tax deduction ). Military tax deduction The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Military tax deduction An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Military tax deduction Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Military tax deduction   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Military tax deduction Example. Military tax deduction Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Military tax deduction A has two interest holders, B and C. Military tax deduction B is a corporation organized under the laws of country Y. Military tax deduction C is a corporation organized under the laws of country Z. Military tax deduction Both countries Y and Z have an income tax treaty in force with the United States. Military tax deduction A receives royalty income from U. Military tax deduction S. Military tax deduction sources that is not effectively connected with the conduct of a trade or business in the United States. Military tax deduction For U. Military tax deduction S. Military tax deduction income tax purposes, A is treated as a partnership. Military tax deduction Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Military tax deduction The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Military tax deduction Accordingly, A is fiscally transparent in its jurisdiction, country X. Military tax deduction B and C are not fiscally transparent under the laws of their respective countries of incorporation. Military tax deduction Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Military tax deduction Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Military tax deduction S. Military tax deduction source royalty income for purposes of the U. Military tax deduction S. Military tax deduction -Y income tax treaty. Military tax deduction Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Military tax deduction Therefore, A is not treated as fiscally transparent under the laws of country Z. Military tax deduction Accordingly, C is not treated as deriving its share of the U. Military tax deduction S. Military tax deduction source royalty income for purposes of the U. Military tax deduction S. Military tax deduction -Z income tax treaty. Military tax deduction Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Military tax deduction This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Military tax deduction You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Military tax deduction An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Military tax deduction A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Military tax deduction In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Military tax deduction You must determine whether the customers or account holders of a foreign intermediary are U. Military tax deduction S. Military tax deduction or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Military tax deduction You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Military tax deduction If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Military tax deduction See Documentation and Presumption Rules , later. Military tax deduction Nonqualified intermediary. Military tax deduction   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Military tax deduction The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Military tax deduction Example. Military tax deduction You make a payment of interest to a foreign bank that is a nonqualified intermediary. Military tax deduction The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Military tax deduction S. Military tax deduction person for whom the bank is collecting the payments. Military tax deduction The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Military tax deduction The account holders are the payees of the interest payment. Military tax deduction You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Military tax deduction S. Military tax deduction person on Form 1099-INT. Military tax deduction Qualified intermediary. Military tax deduction   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Military tax deduction S. Military tax deduction intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Military tax deduction You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Military tax deduction In this situation, the QI is required to withhold the tax. Military tax deduction You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Military tax deduction   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Military tax deduction If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Military tax deduction S. Military tax deduction person. Military tax deduction Branches of financial institutions. Military tax deduction   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Military tax deduction The countries with approved KYC rules are listed on IRS. Military tax deduction gov. Military tax deduction QI withholding agreement. Military tax deduction   Foreign financial institutions and foreign branches of U. Military tax deduction S. Military tax deduction financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Military tax deduction   A QI is entitled to certain simplified withholding and reporting rules. Military tax deduction In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Military tax deduction   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Military tax deduction These forms, and the procedures required to obtain a QI withholding agreement are available at www. Military tax deduction irs. Military tax deduction gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Military tax deduction Documentation. Military tax deduction   A QI is not required to forward documentation obtained from foreign account holders to the U. Military tax deduction S. Military tax deduction withholding agent from whom the QI receives a payment of U. Military tax deduction S. Military tax deduction source income. Military tax deduction The QI maintains such documentation at its location and provides the U. Military tax deduction S. Military tax deduction withholding agent with withholding rate pools. Military tax deduction A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Military tax deduction   A QI is required to provide the U. Military tax deduction S. Military tax deduction withholding agent with information regarding U. Military tax deduction S. Military tax deduction persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Military tax deduction   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Military tax deduction This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Military tax deduction Form 1042-S reporting. Military tax deduction   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Military tax deduction Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Military tax deduction Collective refund procedures. Military tax deduction   A QI may seek a refund on behalf of its direct account holders. Military tax deduction The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Military tax deduction U. Military tax deduction S. Military tax deduction branches of foreign banks and foreign insurance companies. Military tax deduction   Special rules apply to a U. Military tax deduction S. Military tax deduction branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Military tax deduction If you agree to treat the branch as a U. Military tax deduction S. Military tax deduction person, you may treat the branch as a U. Military tax deduction S. Military tax deduction payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Military tax deduction S. Military tax deduction branch on which the agreement is evidenced. Military tax deduction If you treat the branch as a U. Military tax deduction S. Military tax deduction payee, you are not required to withhold. Military tax deduction Even though you agree to treat the branch as a U. Military tax deduction S. Military tax deduction person, you must report the payment on Form 1042-S. Military tax deduction   A financial institution organized in a U. Military tax deduction S. Military tax deduction possession is treated as a U. Military tax deduction S. Military tax deduction branch. Military tax deduction The special rules discussed in this section apply to a possessions financial institution. Military tax deduction   If you are paying a U. Military tax deduction S. Military tax deduction branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Military tax deduction S. Military tax deduction person for amounts subject to NRA withholding. Military tax deduction Consequently, amounts not subject to NRA withholding that are paid to a U. Military tax deduction S. Military tax deduction branch are not subject to Form 1099 reporting or backup withholding. Military tax deduction   Alternatively, a U. Military tax deduction S. Military tax deduction branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Military tax deduction In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Military tax deduction See Nonqualified Intermediaries under  Documentation, later. Military tax deduction   If the U. Military tax deduction S. Military tax deduction branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Military tax deduction Withholding foreign partnership and foreign trust. Military tax deduction   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Military tax deduction A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Military tax deduction   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Military tax deduction A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Military tax deduction You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Military tax deduction WP and WT withholding agreements. Military tax deduction   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Military tax deduction Also see the following items. Military tax deduction Revenue Procedure 2004-21. Military tax deduction Revenue Procedure 2005-77. Military tax deduction Employer identification number (EIN). Military tax deduction   A completed Form SS-4 must be submitted with the application for being a WP or WT. Military tax deduction The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Military tax deduction Documentation. Military tax deduction   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Military tax deduction The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Military tax deduction The Form W-8IMY must contain the WP-EIN or WT-EIN. Military tax deduction Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Military tax deduction A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Military tax deduction S. Military tax deduction person. Military tax deduction It also includes a foreign branch of a U. Military tax deduction S. Military tax deduction financial institution if the foreign branch is a qualified intermediary. Military tax deduction In most cases, the U. Military tax deduction S. Military tax deduction branch of a foreign corporation or partnership is treated as a foreign person. Military tax deduction Nonresident alien. Military tax deduction   A nonresident alien is an individual who is not a U. Military tax deduction S. Military tax deduction citizen or a resident alien. Military tax deduction A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Military tax deduction Married to U. Military tax deduction S. Military tax deduction citizen or resident alien. Military tax deduction   Nonresident alien individuals married to U. Military tax deduction S. Military tax deduction citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Military tax deduction However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Military tax deduction Wages paid to these individuals are subject to graduated withholding. Military tax deduction See Wages Paid to Employees—Graduated Withholding . Military tax deduction Resident alien. Military tax deduction   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Military tax deduction Green card test. Military tax deduction An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Military tax deduction This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Military tax deduction Substantial presence test. Military tax deduction An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Military tax deduction Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Military tax deduction   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Military tax deduction This exception is for a limited period of time. Military tax deduction   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Military tax deduction Note. Military tax deduction   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Military tax deduction For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Military tax deduction Resident of a U. Military tax deduction S. Military tax deduction possession. Military tax deduction   A bona fide resident of Puerto Rico, the U. Military tax deduction S. Military tax deduction Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Military tax deduction S. Military tax deduction citizen or a U. Military tax deduction S. Military tax deduction national is treated as a nonresident alien for the withholding rules explained here. Military tax deduction A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Military tax deduction   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Military tax deduction S. Military tax deduction Possessions. Military tax deduction Foreign corporations. Military tax deduction   A foreign corporation is one that does not fit the definition of a domestic corporation. Military tax deduction A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Military tax deduction Guam or Northern Mariana Islands corporations. Military tax deduction   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Military tax deduction Note. Military tax deduction   The provisions discussed below under U. Military tax deduction S. Military tax deduction Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Military tax deduction U. Military tax deduction S. Military tax deduction Virgin Islands and American Samoa corporations. Military tax deduction   A corporation created or organized in, or under the laws of, the U. Military tax deduction S. Military tax deduction Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Military tax deduction S. Military tax deduction Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Military tax deduction S. Military tax deduction Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Military tax deduction Foreign private foundations. Military tax deduction   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Military tax deduction Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Military tax deduction Other foreign organizations, associations, and charitable institutions. Military tax deduction   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Military tax deduction In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Military tax deduction   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Military tax deduction   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Military tax deduction U. Military tax deduction S. Military tax deduction branches of foreign persons. Military tax deduction   In most cases, a payment to a U. Military tax deduction S. Military tax deduction branch of a foreign person is a payment made to the foreign person. Military tax deduction However, you may treat payments to U. Military tax deduction S. Military tax deduction branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Military tax deduction S. Military tax deduction regulatory supervision as payments made to a U. Military tax deduction S. Military tax deduction person, if you and the U. Military tax deduction S. Military tax deduction branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Military tax deduction For this purpose, a financial institution organized under the laws of a U. Military tax deduction S. Military tax deduction possession is treated as a U. Military tax deduction S. Military tax deduction branch. Military tax deduction Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Military tax deduction The payee is a U. Military tax deduction S. Military tax deduction person. Military tax deduction The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Military tax deduction In most cases, you must get the documentation before you make the payment. Military tax deduction The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Military tax deduction See Standards of Knowledge , later. Military tax deduction If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Military tax deduction For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Military tax deduction The specific types of documentation are discussed in this section. Military tax deduction However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Military tax deduction As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Military tax deduction Section 1446 withholding. Military tax deduction   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Military tax deduction In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Military tax deduction This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Military tax deduction Joint owners. Military tax deduction    If you make a payment to joint owners, you need to get documentation from each owner. Military tax deduction Form W-9. Military tax deduction   In most cases, you can treat the payee as a U. Military tax deduction S. Military tax deduction person if the payee gives you a Form W-9. Military tax deduction The Form W-9 can be used only by a U. Military tax deduction S. Military tax deduction person and must contain the payee's taxpayer identification number (TIN). Military tax deduction If there is more than one owner, you may treat the total amount as paid to a U. Military tax deduction S. Military tax deduction person if any one of the owners gives you a Form W-9. Military tax deduction See U. Military tax deduction S. Military tax deduction Taxpayer Identification Numbers , later. Military tax deduction U. Military tax deduction S. Military tax deduction persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Military tax deduction Form W-8. Military tax deduction   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Military tax deduction Until further notice, you can rely upon Forms W-8 that contain a P. Military tax deduction O. Military tax deduction box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Military tax deduction S. Military tax deduction person and that a street address is available. Military tax deduction You may rely on Forms W-8 for which there is a U. Military tax deduction S. Military tax deduction mailing address provided you received the form prior to December 31, 2001. Military tax deduction   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Military tax deduction You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Military tax deduction S. Military tax deduction possession. Military tax deduction Other documentation. Military tax deduction   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Military tax deduction The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Military tax deduction These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Military tax deduction Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Military tax deduction Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Military tax deduction   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Military tax deduction   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Military tax deduction For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Military tax deduction Claiming treaty benefits. Military tax deduction   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Military tax deduction S. Military tax deduction TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Military tax deduction   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Military tax deduction   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Military tax deduction See Fiscally transparent entity discussed earlier under Flow-Through Entities. Military tax deduction   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Military tax deduction For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Military tax deduction   The exemptions from, or reduced rates of, U. Military tax deduction S. Military tax deduction tax vary under each treaty. Military tax deduction You must check the provisions of the tax treaty that apply. Military tax deduction Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Military tax deduction   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Military tax deduction You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Military tax deduction Exceptions to TIN requirement. Military tax deduction   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Military tax deduction Income from marketable securities (discussed next). Military tax deduction Unexpected payments to an individual (discussed under U. Military tax deduction S. Military tax deduction Taxpayer Identification Numbers ). Military tax deduction Marketable securities. Military tax deduction   A Form W-8BEN provided to claim treaty benefits does not need a U. Military tax deduction S. Military tax deduction TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Military tax deduction For this purpose, income from a marketable security consists of the following items. Military tax deduction Dividends and interest from stocks and debt obligations that are actively traded. Military tax deduction Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Military tax deduction Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Military tax deduction Income related to loans of any of the above securities. Military tax deduction Offshore accounts. Military tax deduction   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Military tax deduction   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Military tax deduction However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Military tax deduction An offshore account is an account maintained at an office or branch of a U. Military tax deduction S. Military tax deduction or foreign bank or other financial institution at any location outside the United States. Military tax deduction   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Military tax deduction This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Military tax deduction In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Military tax deduction Documentary evidence. Military tax deduction   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Military tax deduction To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Military tax deduction Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Military tax deduction Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Military tax deduction In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Military tax deduction Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Military tax deduction   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Military tax deduction (See Effectively Connected Income , later. Military tax deduction )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Military tax deduction   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Military tax deduction S. Military tax deduction trade or business is subject to withholding under section 1446. Military tax deduction If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Military tax deduction    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Military tax deduction Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Military tax deduction   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Military tax deduction S. Military tax deduction possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Military tax deduction   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Military tax deduction   See Foreign Governments and Certain Other Foreign Organizations , later. Military tax deduction Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Military tax deduction The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Military tax deduction The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Military tax deduction Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Military tax deduction S. Military tax deduction Branches for United States Tax Withholding. Military tax deduction   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Military tax deduction S. Military tax deduction branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Military tax deduction S. Military tax deduction branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Military tax deduction S. Military tax deduction person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Military tax deduction For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Military tax deduction 1446-5. Military tax deduction Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Military tax deduction A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Military tax deduction The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Military tax deduction The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Military tax deduction Responsibilities. Military tax deduction   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Military tax deduction However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Military tax deduction Instead, it provides you with a withholding statement that contains withholding rate pool information. Military tax deduction A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Military tax deduction A qualified intermediary is required to provide you with information regarding U. Military tax deduction S. Military tax deduction persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Military tax deduction S. Military tax deduction person unless it has assumed Form 1099 reporting and backup withholding responsibility. Military tax deduction For the alternative procedure for providing rate pool information for U. Military tax deduction S. Military tax deduction non-exempt persons, see the Form W-8IMY instructions. Military tax deduction   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Military tax deduction   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Military tax deduction Primary responsibility not assumed. Military tax deduction   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Military tax deduction Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Military tax deduction S. Military tax deduction person subject to Form 1099 reporting and/or backup withholding. Military tax deduction The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Military tax deduction Primary NRA withholding responsibility assumed. Military tax deduction   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Military tax deduction S. Military tax deduction person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Military tax deduction The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Military tax deduction Primary NRA and Form 1099 responsibility assumed. Military tax deduction   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Military tax deduction It is not necessary to associate the payment with withholding rate pools. Military tax deduction Example. Military tax deduction You make a payment of dividends to a QI. Military tax deduction It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Military tax deduction S. Military tax deduction individual who provides it with a Form W-9. Military tax deduction Each customer is entitled to 20% of the dividend payment. Military tax deduction The QI does not assume any primary withholding responsibility. Military tax deduction The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Military tax deduction S. Military tax deduction individual. Military tax deduction You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Military tax deduction The part of the payment allocable to the U. Military tax deduction S. Military tax deduction individual (20%) is reportable on Form 1099-DIV. Military tax deduction Smaller partnerships and trusts. Military tax deduction   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Military tax deduction It is a foreign partnership or foreign simple or grantor trust. Military tax deduction It is a direct account holder of the QI. Military tax deduction It does not have any partner, beneficiary, or owner that is a U. Military tax deduction S. Military tax deduction person or a pass- through partner, beneficiary, or owner. Military tax deduction   For information on these rules, see section 4A. Military tax deduction 01 of the QI agreement. Military tax deduction This is found in Appendix 3 of Revenue Procedure 2003-64. Military tax deduction Also see Revenue Procedure 2004-21. Military tax deduction Related partnerships and trusts. Military tax deduction    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Military tax deduction It is a foreign partnership or foreign simple or grantor trust. Military tax deduction It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Military tax deduction For information on these rules, see section 4A. Military tax deduction 02 of the QI agreement. Military tax deduction This is found in Appendix 3 of Revenue Procedure 2003-64. Military tax deduction Also see Revenue Procedure 2005-77. Military tax deduction Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Military tax deduction S. Military tax deduction branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Military tax deduction S. Military tax deduction branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Military tax deduction The NQI, flow-through entity, or U. Military tax deduction S. Military tax deduction branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Military tax deduction A withholding statement must be updated to keep the information accurate prior to each payment. Military tax deduction Withholding statement. Military tax deduction   In most cases, a withholding statement must contain the following information. Military tax deduction The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Military tax deduction The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Military tax deduction The status of the person for whom the documentation has been provided, such as whether the person is a U. Military tax deduction S. Military tax deduction exempt recipient (U. Military tax deduction S. Military tax deduction person exempt from Form 1099 reporting), U. Military tax deduction S. Military tax deduction non-exempt recipient (U. Military tax deduction S. Military tax deduction person subject to Form 1099 reporting), or a foreign person. Military tax deduction For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Military tax deduction S. Military tax deduction branch. Military tax deduction The type of recipient the person is, based on the recipient codes used on Form 1042-S. Military tax deduction Information allocating each payment, by income type, to each payee (including U. Military tax deduction S. Military tax deduction exempt and U. Military tax deduction S. Military tax deduction non-exempt recipients) for whom documentation has been provided. Military tax deduction The rate of withholding that applies to each foreign person to whom a payment is allocated. Military tax deduction A foreign payee's country of residence. Military tax deduction If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Military tax deduction ). Military tax deduction In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Military tax deduction The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Military tax deduction S. Military tax deduction branch from which the payee will directly receive a payment. Military tax deduction Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Military tax deduction Alternative procedure. Military tax deduction   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Military tax deduction S. Military tax deduction exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Military tax deduction To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Military tax deduction You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Military tax deduction    This alternative procedure cannot be used for payments to U. Military tax deduction S. Military tax deduction non-exempt recipients. Military tax deduction Therefore, an NQI must always provide you with allocation information for all U. Military tax deduction S. Military tax deduction non-exempt recipients prior to a payment being made. Military tax deduction Pooled withholding information. Military tax deduction   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Military tax deduction A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Military tax deduction For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Military tax deduction The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Military tax deduction Failure to provide allocation information. Military tax deduction   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Military tax deduction You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Military tax deduction An NQI is deemed to have f
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The Military Tax Deduction

Military tax deduction 26. Military tax deduction   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. Military tax deduction Parking fees. Military tax deduction Advertising display on car. Military tax deduction Car pools. Military tax deduction Hauling tools or instruments. Military tax deduction Union members' trips from a union hall. Military tax deduction Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. Military tax deduction Statutory employees. Military tax deduction Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. Military tax deduction  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Military tax deduction Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. Military tax deduction Depreciation limits on cars, trucks, and vans. Military tax deduction  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Military tax deduction For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Military tax deduction For more information, see Depreciation limits in Publication 463. Military tax deduction Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. Military tax deduction An ordinary expense is one that is common and accepted in your trade or business. Military tax deduction A necessary expense is one that is helpful and appropriate for your business. Military tax deduction An expense does not have to be required to be considered necessary. Military tax deduction This chapter explains the following. Military tax deduction What expenses are deductible. Military tax deduction How to report your expenses on your return. Military tax deduction What records you need to prove your expenses. Military tax deduction How to treat any expense reimbursements you may receive. Military tax deduction Who does not need to use this chapter. Military tax deduction   If you are an employee, you will not need to read this chapter if all of the following are true. Military tax deduction You fully accounted to your employer for your work-related expenses. Military tax deduction You received full reimbursement for your expenses. Military tax deduction Your employer required you to return any excess reimbursement and you did so. Military tax deduction There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. Military tax deduction If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. Military tax deduction See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. Military tax deduction    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. Military tax deduction Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. Military tax deduction This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. Military tax deduction It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. Military tax deduction Travel expenses defined. Military tax deduction   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. Military tax deduction   You will find examples of deductible travel expenses in Table 26-1 . Military tax deduction Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Military tax deduction This rest requirement is not satisfied by merely napping in your car. Military tax deduction You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Military tax deduction Example 1. Military tax deduction You are a railroad conductor. Military tax deduction You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Military tax deduction During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Military tax deduction You are considered to be away from home. Military tax deduction Example 2. Military tax deduction You are a truck driver. Military tax deduction You leave your terminal and return to it later the same day. Military tax deduction You get an hour off at your turnaround point to eat. Military tax deduction Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Military tax deduction Members of the Armed Forces. Military tax deduction   If you are a member of the U. Military tax deduction S. Military tax deduction Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Military tax deduction You cannot deduct your expenses for meals and lodging. Military tax deduction You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Military tax deduction If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Military tax deduction    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. Military tax deduction Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Military tax deduction Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Military tax deduction It includes the entire city or general area in which your business or work is located. Military tax deduction If you have more than one regular place of business, your tax home is your main place of business. Military tax deduction See Main place of business or work , later. Military tax deduction If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Military tax deduction See No main place of business or work , later. Military tax deduction If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Military tax deduction As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Military tax deduction Main place of business or work. Military tax deduction   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. Military tax deduction The total time you ordinarily spend in each place. Military tax deduction The level of your business activity in each place. Military tax deduction Whether your income from each place is significant or insignificant. Military tax deduction Example. Military tax deduction You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Military tax deduction You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Military tax deduction Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Military tax deduction No main place of business or work. Military tax deduction   You may have a tax home even if you do not have a regular or main place of business or work. Military tax deduction Your tax home may be the home where you regularly live. Military tax deduction Factors used to determine tax home. Military tax deduction   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Military tax deduction You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Military tax deduction You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Military tax deduction You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Military tax deduction   If you satisfy all three factors, your tax home is the home where you regularly live. Military tax deduction If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Military tax deduction If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Military tax deduction Example. Military tax deduction You are single and live in Boston in an apartment you rent. Military tax deduction You have worked for your employer in Boston for a number of years. Military tax deduction Your employer enrolls you in a 12-month executive training program. Military tax deduction You do not expect to return to work in Boston after you complete your training. Military tax deduction During your training, you do not do any work in Boston. Military tax deduction Instead, you receive classroom and on-the-job training throughout the United States. Military tax deduction You keep your apartment in Boston and return to it frequently. Military tax deduction You use your apartment to conduct your personal business. Military tax deduction You also keep up your community contacts in Boston. Military tax deduction When you complete your training, you are transferred to Los Angeles. Military tax deduction You do not satisfy factor (1) because you did not work in Boston. Military tax deduction You satisfy factor (2) because you had duplicate living expenses. Military tax deduction You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Military tax deduction Therefore, you have a tax home in Boston. Military tax deduction Tax home different from family home. Military tax deduction   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Military tax deduction You also cannot deduct the cost of meals and lodging while at your tax home. Military tax deduction See Example 1 . Military tax deduction   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Military tax deduction See Example 2 . Military tax deduction Example 1. Military tax deduction You are a truck driver and you and your family live in Tucson. Military tax deduction You are employed by a trucking firm that has its terminal in Phoenix. Military tax deduction At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Military tax deduction You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Military tax deduction This is because Phoenix is your tax home. Military tax deduction Example 2. Military tax deduction Your family home is in Pittsburgh, where you work 12 weeks a year. Military tax deduction The rest of the year you work for the same employer in Baltimore. Military tax deduction In Baltimore, you eat in restaurants and sleep in a rooming house. Military tax deduction Your salary is the same whether you are in Pittsburgh or Baltimore. Military tax deduction Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Military tax deduction You cannot deduct any expenses you have for meals and lodging there. Military tax deduction However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Military tax deduction You can deduct the cost of your round trip between Baltimore and Pittsburgh. Military tax deduction You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Military tax deduction Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Military tax deduction It may not be practical to return to your tax home from this other location at the end of each work day. Military tax deduction Temporary assignment vs. Military tax deduction indefinite assignment. Military tax deduction   If your assignment or job away from your main place of work is temporary, your tax home does not change. Military tax deduction You are considered to be away from home for the whole period you are away from your main place of work. Military tax deduction You can deduct your travel expenses if they otherwise qualify for deduction. Military tax deduction Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Military tax deduction   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Military tax deduction An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Military tax deduction   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Military tax deduction You may be able to deduct the cost of relocating to your new tax home as a moving expense. Military tax deduction See Publication 521 for more information. Military tax deduction Exception for federal crime investigations or prosecutions. Military tax deduction   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Military tax deduction This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. Military tax deduction   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. Military tax deduction Determining temporary or indefinite. Military tax deduction   You must determine whether your assignment is temporary or indefinite when you start work. Military tax deduction If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Military tax deduction An assignment or job that is initially temporary may become indefinite due to changed circumstances. Military tax deduction A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Military tax deduction Going home on days off. Military tax deduction   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Military tax deduction You cannot deduct the cost of your meals and lodging there. Military tax deduction However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Military tax deduction You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Military tax deduction   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Military tax deduction In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Military tax deduction Probationary work period. Military tax deduction   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Military tax deduction You cannot deduct any of your expenses for meals and lodging during the probationary period. Military tax deduction What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Military tax deduction You can deduct ordinary and necessary expenses you have when you travel away from home on business. Military tax deduction The type of expense you can deduct depends on the facts and your circumstances. Military tax deduction Table 26-1 summarizes travel expenses you may be able to deduct. Military tax deduction You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Military tax deduction When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Military tax deduction You can use a log, diary, notebook, or any other written record to keep track of your expenses. Military tax deduction The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. Military tax deduction Separating costs. Military tax deduction   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Military tax deduction You must have a reasonable basis for making this allocation. Military tax deduction For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Military tax deduction Travel expenses for another individual. Military tax deduction   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Military tax deduction Employee. Military tax deduction   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Military tax deduction Business associate. Military tax deduction   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. Military tax deduction A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. Military tax deduction A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Military tax deduction Bona fide business purpose. Military tax deduction   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Military tax deduction Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Military tax deduction Example. Military tax deduction Jerry drives to Chicago on business and takes his wife, Linda, with him. Military tax deduction Linda is not Jerry's employee. Military tax deduction Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Military tax deduction The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Military tax deduction Her expenses are not deductible. Military tax deduction Jerry pays $199 a day for a double room. Military tax deduction A single room costs $149 a day. Military tax deduction He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Military tax deduction If he uses public transportation, he can deduct only his fare. Military tax deduction Table 26-1. Military tax deduction Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. Military tax deduction IF you have expenses for. Military tax deduction . Military tax deduction . Military tax deduction THEN you can deduct the cost of. Military tax deduction . Military tax deduction . Military tax deduction transportation travel by airplane, train, bus, or car between your home and your business destination. Military tax deduction If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Military tax deduction If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. Military tax deduction taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Military tax deduction baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Military tax deduction car operating and maintaining your car when traveling away from home on business. Military tax deduction You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. Military tax deduction If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Military tax deduction lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Military tax deduction Meals include amounts spent for food, beverages, taxes, and related tips. Military tax deduction See Meals and Incidental Expenses for additional rules and limits. Military tax deduction cleaning dry cleaning and laundry. Military tax deduction telephone business calls while on your business trip. Military tax deduction This includes business communication by fax machine or other communication devices. Military tax deduction tips tips you pay for any expenses in this chart. Military tax deduction other other similar ordinary and necessary expenses related to your business travel. Military tax deduction These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Military tax deduction Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. Military tax deduction It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Military tax deduction The meal is business-related entertainment. Military tax deduction Business-related entertainment is discussed under Entertainment Expenses , later. Military tax deduction The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. Military tax deduction Lavish or extravagant. Military tax deduction   You cannot deduct expenses for meals that are lavish or extravagant. Military tax deduction An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Military tax deduction Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Military tax deduction 50% limit on meals. Military tax deduction   You can figure your meal expenses using either of the following methods. Military tax deduction Actual cost. Military tax deduction The standard meal allowance. Military tax deduction Both of these methods are explained below. Military tax deduction But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Military tax deduction   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Military tax deduction If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Military tax deduction The 50% limit is explained later under Entertainment Expenses . Military tax deduction Accountable and nonaccountable plans are discussed later under Reimbursements . Military tax deduction Actual cost. Military tax deduction   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Military tax deduction If you use this method, you must keep records of your actual cost. Military tax deduction Standard meal allowance. Military tax deduction   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Military tax deduction It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Military tax deduction The set amount varies depending on where and when you travel. Military tax deduction In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Military tax deduction If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Military tax deduction See Recordkeeping , later. Military tax deduction Incidental expenses. Military tax deduction   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Military tax deduction Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Military tax deduction Incidental expenses only method. Military tax deduction   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Military tax deduction The amount of the deduction is $5 a day. Military tax deduction You can use this method only if you did not pay or incur any meal expenses. Military tax deduction You cannot use this method on any day that you use the standard meal allowance. Military tax deduction    Federal employees should refer to the Federal Travel Regulations at  www. Military tax deduction gsa. Military tax deduction gov. Military tax deduction Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Military tax deduction 50% limit may apply. Military tax deduction   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Military tax deduction If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Military tax deduction The 50% limit is explained later under Entertainment Expenses . Military tax deduction Accountable and nonaccountable plans are discussed later under Reimbursements . Military tax deduction There is no optional standard lodging amount similar to the standard meal allowance. Military tax deduction Your allowable lodging expense deduction is your actual cost. Military tax deduction Who can use the standard meal allowance. Military tax deduction   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Military tax deduction   Use of the standard meal allowance for other travel. Military tax deduction    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Military tax deduction You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Military tax deduction You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Military tax deduction Amount of standard meal allowance. Military tax deduction   The standard meal allowance is the federal M&IE rate. Military tax deduction For travel in 2013, the daily rate for most small localities in the United States is $46. Military tax deduction   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Military tax deduction You can find this information (organized by state) on the Internet at www. Military tax deduction gsa. Military tax deduction gov. Military tax deduction Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. Military tax deduction However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. Military tax deduction You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. Military tax deduction   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Military tax deduction If you work in the transportation industry, however, see Special rate for transportation workers , later. Military tax deduction Standard meal allowance for areas outside the continental United States. Military tax deduction    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Military tax deduction The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Military tax deduction S. Military tax deduction Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Military tax deduction The Department of State establishes per diem rates for all other foreign areas. Military tax deduction    You can access per diem rates for non-foreign areas outside the continental United States at: www. Military tax deduction defensetravel. Military tax deduction dod. Military tax deduction mil/site/perdiemCalc. Military tax deduction cfm. Military tax deduction You can access all other foreign per diem rates at www. Military tax deduction state. Military tax deduction gov/travel/. Military tax deduction Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. Military tax deduction Special rate for transportation workers. Military tax deduction   You can use a special standard meal allowance if you work in the transportation industry. Military tax deduction You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Military tax deduction If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). Military tax deduction   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Military tax deduction If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Military tax deduction Travel for days you depart and return. Military tax deduction   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Military tax deduction You can do so by one of two methods. Military tax deduction Method 1: You can claim 3/4 of the standard meal allowance. Military tax deduction Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Military tax deduction Example. Military tax deduction Jen is employed in New Orleans as a convention planner. Military tax deduction In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Military tax deduction She left her home in New Orleans at 10 a. Military tax deduction m. Military tax deduction on Wednesday and arrived in Washington, DC, at 5:30 p. Military tax deduction m. Military tax deduction After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Military tax deduction m. Military tax deduction Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Military tax deduction Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Military tax deduction Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Military tax deduction For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Military tax deduction Travel in the United States The following discussion applies to travel in the United States. Military tax deduction For this purpose, the United States includes only the 50 states and the District of Columbia. Military tax deduction The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Military tax deduction See Part of Trip Outside the United States , later. Military tax deduction Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. Military tax deduction If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. Military tax deduction These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Military tax deduction Example. Military tax deduction You work in Atlanta and take a business trip to New Orleans in May. Military tax deduction On your way home, you stop in Mobile to visit your parents. Military tax deduction You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Military tax deduction If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. Military tax deduction You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. Military tax deduction The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Military tax deduction Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Military tax deduction However, you can deduct any expenses you have while at your destination that are directly related to your business. Military tax deduction A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Military tax deduction The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Military tax deduction Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. Military tax deduction For the part of your trip that is inside the United States, use the rules for travel in the United States. Military tax deduction Travel outside the United States does not include travel from one point in the United States to another point in the United States. Military tax deduction The following discussion can help you determine whether your trip was entirely within the United States. Military tax deduction Public transportation. Military tax deduction   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Military tax deduction Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Military tax deduction Example. Military tax deduction You fly from New York to Puerto Rico with a scheduled stop in Miami. Military tax deduction You return to New York nonstop. Military tax deduction The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Military tax deduction Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Military tax deduction Private car. Military tax deduction   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. Military tax deduction Example. Military tax deduction You travel by car from Denver to Mexico City and return. Military tax deduction Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Military tax deduction The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Military tax deduction Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Military tax deduction For this purpose, the United States includes only the 50 states and the District of Columbia. Military tax deduction How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Military tax deduction See chapter 1 of Publication 463 for information on luxury water travel. Military tax deduction Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Military tax deduction Travel entirely for business. Military tax deduction   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Military tax deduction Travel considered entirely for business. Military tax deduction   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Military tax deduction Exception 1 - No substantial control. Military tax deduction   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Military tax deduction The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Military tax deduction   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. Military tax deduction    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . Military tax deduction   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Military tax deduction    A self-employed person generally has substantial control over arranging business trips. Military tax deduction Exception 2 - Outside United States no more than a week. Military tax deduction   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Military tax deduction One week means 7 consecutive days. Military tax deduction In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Military tax deduction Exception 3 - Less than 25% of time on personal activities. Military tax deduction   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Military tax deduction For this purpose, count both the day your trip began and the day it ended. Military tax deduction Exception 4 - Vacation not a major consideration. Military tax deduction   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Military tax deduction Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. Military tax deduction You can only deduct the business portion of your cost of getting to and from your destination. Military tax deduction You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. Military tax deduction These travel allocation rules are discussed in chapter 1 of Publication 463. Military tax deduction You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. Military tax deduction In those cases, you can deduct the total cost of getting to and from your destination. Military tax deduction Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Military tax deduction If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Military tax deduction Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Military tax deduction You cannot deduct the travel expenses for your family. Military tax deduction If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Military tax deduction Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Military tax deduction You can deduct your travel expenses only if your attendance is connected to your own trade or business. Military tax deduction Convention agenda. Military tax deduction   The convention agenda or program generally shows the purpose of the convention. Military tax deduction You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Military tax deduction The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Military tax deduction Conventions held outside the North American area. Military tax deduction    See chapter 1 of Publication 463 for information on conventions held outside the North American area. Military tax deduction Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Military tax deduction You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. Military tax deduction Directly-related test. Military tax deduction Associated test. Military tax deduction Both of these tests are explained in chapter 2 of Publication 463. Military tax deduction The amount you can deduct for entertainment expenses may be limited. Military tax deduction Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Military tax deduction This limit is discussed next. Military tax deduction 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Military tax deduction (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Military tax deduction See Individuals subject to “hours of service” limits , later. Military tax deduction ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Military tax deduction Figure 26-A summarizes the general rules explained in this section. Military tax deduction The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Military tax deduction Included expenses. Military tax deduction   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Military tax deduction However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Military tax deduction Application of 50% limit. Military tax deduction   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. Military tax deduction   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Military tax deduction It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. Military tax deduction It also applies to the cost of meals included in deductible educational expenses. Military tax deduction When to apply the 50% limit. Military tax deduction   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Military tax deduction You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. Military tax deduction Example 1. Military tax deduction You spend $200 for a business-related meal. Military tax deduction If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Military tax deduction Your deduction cannot be more than $45 (. Military tax deduction 50 × $90). Military tax deduction Example 2. Military tax deduction You purchase two tickets to a concert and give them to a client. Military tax deduction You purchased the tickets through a ticket agent. Military tax deduction You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Military tax deduction Your deduction cannot be more than $80 (. Military tax deduction 50 × $160). Military tax deduction Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Military tax deduction Figure 26-A can help you determine if the 50% limit applies to you. Military tax deduction Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Military tax deduction Employee's reimbursed expenses. Military tax deduction   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Military tax deduction Accountable plans are discussed later under Reimbursements . Military tax deduction Individuals subject to “hours of service” limits. Military tax deduction   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Military tax deduction The percentage is 80%. Military tax deduction   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Military tax deduction Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Military tax deduction Interstate truck operators and bus drivers who are under Department of Transportation regulations. Military tax deduction Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Military tax deduction Certain merchant mariners who are under Coast Guard regulations. Military tax deduction Other exceptions. Military tax deduction   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. Military tax deduction These are discussed in Publication 463. Military tax deduction Figure 26-A. Military tax deduction Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Military tax deduction See Exceptions to the 50% Limit . Military tax deduction Please click here for the text description of the image. Military tax deduction Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Military tax deduction Entertainment. Military tax deduction    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Military tax deduction Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. Military tax deduction A meal as a form of entertainment. Military tax deduction   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Military tax deduction A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Military tax deduction To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Military tax deduction You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Military tax deduction Separating costs. Military tax deduction   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Military tax deduction You must have a reasonable basis for making this allocation. Military tax deduction For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Military tax deduction Taking turns paying for meals or entertainment. Military tax deduction   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Military tax deduction Lavish or extravagant expenses. Military tax deduction   You cannot deduct expenses for entertainment that are lavish or extravagant. Military tax deduction An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Military tax deduction Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Military tax deduction Trade association meetings. Military tax deduction    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Military tax deduction These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Military tax deduction Entertainment tickets. Military tax deduction   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Military tax deduction For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Military tax deduction What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Military tax deduction Club dues and membership fees. Military tax deduction   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Military tax deduction This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. Military tax deduction   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Military tax deduction You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Military tax deduction Entertainment facilities. Military tax deduction   Generally, you cannot deduct any expense for the use of an entertainment facility. Military tax deduction This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Military tax deduction   An entertainment facility is any property you own, rent, or use for entertainment. Military tax deduction Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Military tax deduction Out-of-pocket expenses. Military tax deduction   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Military tax deduction These are not expenses for the use of an entertainment facility. Military tax deduction However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. Military tax deduction Additional information. Military tax deduction   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. Military tax deduction Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. Military tax deduction This section explains the limits and rules for deducting the costs of gifts. Military tax deduction $25 limit. Military tax deduction   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Military tax deduction A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. Military tax deduction   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. Military tax deduction This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. Military tax deduction   If you and your spouse both give gifts, both of you are treated as one taxpayer. Military tax deduction It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. Military tax deduction If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. Military tax deduction Incidental costs. Military tax deduction   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. Military tax deduction   A cost is incidental only if it does not add substantial value to the gift. Military tax deduction For example, the cost of customary gift wrapping is an incidental cost. Military tax deduction However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. Military tax deduction Exceptions. Military tax deduction   The following items are not considered gifts for purposes of the $25 limit. Military tax deduction An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. Military tax deduction Examples include pens, desk sets, and plastic bags and cases. Military tax deduction Signs, display racks, or other promotional material to be used on the business premises of the recipient. Military tax deduction Gift or entertainment. Military tax deduction   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Military tax deduction However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. Military tax deduction    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Military tax deduction You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. Military tax deduction    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Military tax deduction You cannot choose, in this case, to treat the cost of the tickets as a gift expense. Military tax deduction Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . Military tax deduction These expenses include the cost of transportation by air, rail, bus, taxi, etc. Military tax deduction , and the cost of driving and maintaining your car. Military tax deduction Transportation expenses include the ordinary and necessary costs of all of the following. Military tax deduction Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. Military tax deduction (Tax home is defined earlier under Travel Expenses . Military tax deduction ) Visiting clients or customers. Military tax deduction Going to a business meeting away from your regular workplace. Military tax deduction Getting from your home to a temporary workplace when you have one or more regular places of work. Military tax deduction These temporary workplaces can be either within the area of your tax home or outside that area. Military tax deduction Transportation expenses do not include expenses you have while traveling away from home overnight. Military tax deduction Those expenses are travel expenses, discussed earlier. Military tax deduction However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Military tax deduction See Car Expenses , later. Military tax deduction Illustration of transportation expenses. Military tax deduction    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. Military tax deduction You may want to refer to it when deciding whether you can deduct your transportation expenses. Military tax deduction Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Military tax deduction However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. Military tax deduction Temporary work location. Military tax deduction   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Military tax deduction   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Military tax deduction   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Military tax deduction   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Military tax deduction It will not be treated as temporary after the date you determine it will last more than 1 year. Military tax deduction   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Military tax deduction You may have deductible travel expenses as discussed earlier in this chapter. Military tax deduction No regular place of work. Military tax deduction   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Military tax deduction   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Military tax deduction   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Military tax deduction These are nondeductible commuting expenses. Military tax deduction Two places of work. Military tax deduction   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Military tax deduction However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Military tax deduction   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Military tax deduction You cannot deduct them. Military tax deduction Armed Forces reservists. Military tax deduction   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Military tax deduction You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. Military tax deduction   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Military tax deduction In this case, your transportation generally is a nondeductible commuting expense. Military tax deduction However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Military tax deduction   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Military tax deduction   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Military tax deduction These expenses are discussed earlier under Travel Expenses . Military tax deduction   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. Military tax deduction See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. Military tax deduction Commuting expenses. Military tax deduction   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Military tax deduction These costs are personal commuting expenses. Military tax deduction You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Military tax deduction You cannot deduct commuting expenses even if you work during the commuting trip. Military tax deduction Example. Military tax deduction You sometimes use your cell phone to make business calls while commuting to and from work. Military tax deduction Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Military tax deduction These activities do not change the trip from personal to business. Military tax deduction You cannot deduct your commuting expenses. Military tax deduction Parking fees. Military tax deduction   Fees you pay to park your car at your place of business are nondeductible commuting expenses. Military tax deduction You can, however, deduct business-related parking fees when visiting a customer or client. Military tax deduction Advertising display on car. Military tax deduction   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Military tax deduction If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Military tax deduction Car pools. Military tax deduction   You cannot deduct the cost of using your car in a nonprofit car pool. Military tax deduction Do not include payments you receive from the passengers in your income. Military tax deduction These payments are considered reimbursements of your expenses. Military tax deduction However, if you operate a car pool for a profit, you must include payments from passengers in your income. Military tax deduction You can then deduct your car expenses (using the rules in this chapter). Military tax deduction Hauling tools or instruments. Military tax deduction   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Military tax deduction However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Military tax deduction Union members' trips from a union hall. Military tax deduction   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Military tax deduction Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Military tax deduction Office in the home. Military tax deduction   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Military tax deduction (See chapter 28 for information on determining if your home office qualifies as a principal place of business. Military tax deduction ) Figure 26-B. Military tax deduction When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. Military tax deduction (Do not use this chart if your home is your principal place of business. Military tax deduction See Office in the home . Military tax deduction ) Please click here for the text description of the image. Military tax deduction Figure 26-B. Military tax deduction Local Transportation Examples of deductible transportation. Military tax deduction   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Military tax deduction Example 1. Military tax deduction You regularly work in an office in the city where you live. Military tax deduction Your employer sends you to a 1-week training session at a different office in the same city. Military tax deduction You travel directly from your home to the training location and return each day. Military tax deduction You can deduct the cost of your daily round-trip transportation between your home and the training location. Military tax deduction Example 2. Military tax deduction Your principal place of business is in your home. Military tax deduction You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Military tax deduction Example 3. Military tax deduction You have no regular office, and you do not have an office in your home. Military tax deduction In this case, the location of your first business contact inside the metropolitan area is considered your office. Military tax deduction Transportation expenses between your home and this first contact are nondeductible commuting expenses. Military tax deduction Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Military tax deduction While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. Military tax deduction With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. Military tax deduction Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. Military tax deduction You generally can use one of the two following methods to figure your deductible expenses. Military tax deduction Standard mileage rate. Military tax deduction Actual car expenses. Military tax deduction If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Military tax deduction See Leasing a car under Actual Car Expenses, later. Military tax deduction In this chapter, “car” includes a van, pickup, or panel truck. Military tax deduction Rural mail carriers. Military tax deduction   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. Military tax deduction Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. Military tax deduction   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Military tax deduction You must complete Form 2106 and attach it to your Form 1040. Military tax deduction   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Military tax deduction It is given as an equipment maintenance allowance (EMA) to employees of the U. Military tax deduction S. Military tax deduction Postal Service. Military tax deduction It is at the rate contained in the 1991 collective bargaining agreement. Military tax deduction Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Military tax deduction See your employer for information on your reimbursement. Military tax deduction If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Military tax deduction Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Military tax deduction For 2013, the standard mileage rate for business use is 56½ cents per mile. Military tax deduction If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. Military tax deduction You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Military tax deduction See Reimbursements under How To Report, later. Military tax deduction Choosing the standard mileage rate. Military tax deduction   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Military tax deduction Then in later years, you can choose to use either the standard mileage rate or actual expenses. Military tax deduction   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Military tax deduction   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Military tax deduction You cannot revoke the choice. Military tax deduction However, in a later year, you can switch from the standard mileage rate to the actual expenses method. Military tax deduction If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Military tax deduction Example. Military tax deduction Larry is an employee who occasionally uses his own car for business purposes. Military tax deduction He purchased the car in 2011, but he did not claim any unreimburse