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State 1040 Ez Form

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State 1040 Ez Form

State 1040 ez form 26. State 1040 ez form   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. State 1040 ez form Parking fees. State 1040 ez form Advertising display on car. State 1040 ez form Car pools. State 1040 ez form Hauling tools or instruments. State 1040 ez form Union members' trips from a union hall. State 1040 ez form Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. State 1040 ez form Statutory employees. State 1040 ez form Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. State 1040 ez form  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. State 1040 ez form Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. State 1040 ez form Depreciation limits on cars, trucks, and vans. State 1040 ez form  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). State 1040 ez form For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). State 1040 ez form For more information, see Depreciation limits in Publication 463. State 1040 ez form Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. State 1040 ez form An ordinary expense is one that is common and accepted in your trade or business. State 1040 ez form A necessary expense is one that is helpful and appropriate for your business. State 1040 ez form An expense does not have to be required to be considered necessary. State 1040 ez form This chapter explains the following. State 1040 ez form What expenses are deductible. State 1040 ez form How to report your expenses on your return. State 1040 ez form What records you need to prove your expenses. State 1040 ez form How to treat any expense reimbursements you may receive. State 1040 ez form Who does not need to use this chapter. State 1040 ez form   If you are an employee, you will not need to read this chapter if all of the following are true. State 1040 ez form You fully accounted to your employer for your work-related expenses. State 1040 ez form You received full reimbursement for your expenses. State 1040 ez form Your employer required you to return any excess reimbursement and you did so. State 1040 ez form There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. State 1040 ez form If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. State 1040 ez form See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. State 1040 ez form    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. State 1040 ez form 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. State 1040 ez form This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. State 1040 ez form It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. State 1040 ez form Travel expenses defined. State 1040 ez form   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. State 1040 ez form   You will find examples of deductible travel expenses in Table 26-1 . State 1040 ez form 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. State 1040 ez form This rest requirement is not satisfied by merely napping in your car. State 1040 ez form 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. State 1040 ez form Example 1. State 1040 ez form You are a railroad conductor. State 1040 ez form You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. State 1040 ez form 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. State 1040 ez form You are considered to be away from home. State 1040 ez form Example 2. State 1040 ez form You are a truck driver. State 1040 ez form You leave your terminal and return to it later the same day. State 1040 ez form You get an hour off at your turnaround point to eat. State 1040 ez form 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. State 1040 ez form Members of the Armed Forces. State 1040 ez form   If you are a member of the U. State 1040 ez form S. State 1040 ez form Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. State 1040 ez form You cannot deduct your expenses for meals and lodging. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form    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. State 1040 ez form Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. State 1040 ez form Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. State 1040 ez form It includes the entire city or general area in which your business or work is located. State 1040 ez form If you have more than one regular place of business, your tax home is your main place of business. State 1040 ez form See Main place of business or work , later. State 1040 ez form 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. State 1040 ez form See No main place of business or work , later. State 1040 ez form 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. State 1040 ez form As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. State 1040 ez form Main place of business or work. State 1040 ez form   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. State 1040 ez form The total time you ordinarily spend in each place. State 1040 ez form The level of your business activity in each place. State 1040 ez form Whether your income from each place is significant or insignificant. State 1040 ez form Example. State 1040 ez form You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. State 1040 ez form You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. State 1040 ez form Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. State 1040 ez form No main place of business or work. State 1040 ez form   You may have a tax home even if you do not have a regular or main place of business or work. State 1040 ez form Your tax home may be the home where you regularly live. State 1040 ez form Factors used to determine tax home. State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form You have living expenses at your main home that you duplicate because your business requires you to be away from that home. State 1040 ez form 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. State 1040 ez form   If you satisfy all three factors, your tax home is the home where you regularly live. State 1040 ez form If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. State 1040 ez form If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. State 1040 ez form Example. State 1040 ez form You are single and live in Boston in an apartment you rent. State 1040 ez form You have worked for your employer in Boston for a number of years. State 1040 ez form Your employer enrolls you in a 12-month executive training program. State 1040 ez form You do not expect to return to work in Boston after you complete your training. State 1040 ez form During your training, you do not do any work in Boston. State 1040 ez form Instead, you receive classroom and on-the-job training throughout the United States. State 1040 ez form You keep your apartment in Boston and return to it frequently. State 1040 ez form You use your apartment to conduct your personal business. State 1040 ez form You also keep up your community contacts in Boston. State 1040 ez form When you complete your training, you are transferred to Los Angeles. State 1040 ez form You do not satisfy factor (1) because you did not work in Boston. State 1040 ez form You satisfy factor (2) because you had duplicate living expenses. State 1040 ez form 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. State 1040 ez form Therefore, you have a tax home in Boston. State 1040 ez form Tax home different from family home. State 1040 ez form   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. State 1040 ez form You also cannot deduct the cost of meals and lodging while at your tax home. State 1040 ez form See Example 1 . State 1040 ez form   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. State 1040 ez form See Example 2 . State 1040 ez form Example 1. State 1040 ez form You are a truck driver and you and your family live in Tucson. State 1040 ez form You are employed by a trucking firm that has its terminal in Phoenix. State 1040 ez form At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. State 1040 ez form You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. State 1040 ez form This is because Phoenix is your tax home. State 1040 ez form Example 2. State 1040 ez form Your family home is in Pittsburgh, where you work 12 weeks a year. State 1040 ez form The rest of the year you work for the same employer in Baltimore. State 1040 ez form In Baltimore, you eat in restaurants and sleep in a rooming house. State 1040 ez form Your salary is the same whether you are in Pittsburgh or Baltimore. State 1040 ez form Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. State 1040 ez form You cannot deduct any expenses you have for meals and lodging there. State 1040 ez form However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. State 1040 ez form You can deduct the cost of your round trip between Baltimore and Pittsburgh. State 1040 ez form You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. State 1040 ez form Temporary Assignment or Job You may regularly work at your tax home and also work at another location. State 1040 ez form It may not be practical to return to your tax home from this other location at the end of each work day. State 1040 ez form Temporary assignment vs. State 1040 ez form indefinite assignment. State 1040 ez form   If your assignment or job away from your main place of work is temporary, your tax home does not change. State 1040 ez form You are considered to be away from home for the whole period you are away from your main place of work. State 1040 ez form You can deduct your travel expenses if they otherwise qualify for deduction. State 1040 ez form 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. State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form   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. State 1040 ez form You may be able to deduct the cost of relocating to your new tax home as a moving expense. State 1040 ez form See Publication 521 for more information. State 1040 ez form Exception for federal crime investigations or prosecutions. State 1040 ez form   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. State 1040 ez form 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. State 1040 ez form   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. State 1040 ez form Determining temporary or indefinite. State 1040 ez form   You must determine whether your assignment is temporary or indefinite when you start work. State 1040 ez form 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. State 1040 ez form An assignment or job that is initially temporary may become indefinite due to changed circumstances. State 1040 ez form 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. State 1040 ez form Going home on days off. State 1040 ez form   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. State 1040 ez form You cannot deduct the cost of your meals and lodging there. State 1040 ez form However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. State 1040 ez form You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. State 1040 ez form   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. State 1040 ez form 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. State 1040 ez form Probationary work period. State 1040 ez form   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. State 1040 ez form You cannot deduct any of your expenses for meals and lodging during the probationary period. State 1040 ez form 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. State 1040 ez form You can deduct ordinary and necessary expenses you have when you travel away from home on business. State 1040 ez form The type of expense you can deduct depends on the facts and your circumstances. State 1040 ez form Table 26-1 summarizes travel expenses you may be able to deduct. State 1040 ez form You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. State 1040 ez form 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. State 1040 ez form You can use a log, diary, notebook, or any other written record to keep track of your expenses. State 1040 ez form The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. State 1040 ez form Separating costs. State 1040 ez form   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. State 1040 ez form You must have a reasonable basis for making this allocation. State 1040 ez form For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. State 1040 ez form Travel expenses for another individual. State 1040 ez form   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. State 1040 ez form Employee. State 1040 ez form   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. State 1040 ez form Business associate. State 1040 ez form   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. State 1040 ez form A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. State 1040 ez form A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. State 1040 ez form Bona fide business purpose. State 1040 ez form   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. State 1040 ez form Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. State 1040 ez form Example. State 1040 ez form Jerry drives to Chicago on business and takes his wife, Linda, with him. State 1040 ez form Linda is not Jerry's employee. State 1040 ez form Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. State 1040 ez form The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. State 1040 ez form Her expenses are not deductible. State 1040 ez form Jerry pays $199 a day for a double room. State 1040 ez form A single room costs $149 a day. State 1040 ez form He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. State 1040 ez form If he uses public transportation, he can deduct only his fare. State 1040 ez form Table 26-1. State 1040 ez form Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. State 1040 ez form IF you have expenses for. State 1040 ez form . State 1040 ez form . State 1040 ez form THEN you can deduct the cost of. State 1040 ez form . State 1040 ez form . State 1040 ez form transportation travel by airplane, train, bus, or car between your home and your business destination. State 1040 ez form 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. State 1040 ez form If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. State 1040 ez form 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. State 1040 ez form baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. State 1040 ez form car operating and maintaining your car when traveling away from home on business. State 1040 ez form You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. State 1040 ez form If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. State 1040 ez form 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. State 1040 ez form Meals include amounts spent for food, beverages, taxes, and related tips. State 1040 ez form See Meals and Incidental Expenses for additional rules and limits. State 1040 ez form cleaning dry cleaning and laundry. State 1040 ez form telephone business calls while on your business trip. State 1040 ez form This includes business communication by fax machine or other communication devices. State 1040 ez form tips tips you pay for any expenses in this chart. State 1040 ez form other other similar ordinary and necessary expenses related to your business travel. State 1040 ez form 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. State 1040 ez form Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. State 1040 ez form It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. State 1040 ez form The meal is business-related entertainment. State 1040 ez form Business-related entertainment is discussed under Entertainment Expenses , later. State 1040 ez form The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. State 1040 ez form Lavish or extravagant. State 1040 ez form   You cannot deduct expenses for meals that are lavish or extravagant. State 1040 ez form An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. State 1040 ez form 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. State 1040 ez form 50% limit on meals. State 1040 ez form   You can figure your meal expenses using either of the following methods. State 1040 ez form Actual cost. State 1040 ez form The standard meal allowance. State 1040 ez form Both of these methods are explained below. State 1040 ez form But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. State 1040 ez form   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. State 1040 ez form If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. State 1040 ez form The 50% limit is explained later under Entertainment Expenses . State 1040 ez form Accountable and nonaccountable plans are discussed later under Reimbursements . State 1040 ez form Actual cost. State 1040 ez form   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. State 1040 ez form If you use this method, you must keep records of your actual cost. State 1040 ez form Standard meal allowance. State 1040 ez form   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. State 1040 ez form 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. State 1040 ez form The set amount varies depending on where and when you travel. State 1040 ez form In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . State 1040 ez form If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. State 1040 ez form See Recordkeeping , later. State 1040 ez form Incidental expenses. State 1040 ez form   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. State 1040 ez form 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. State 1040 ez form Incidental expenses only method. State 1040 ez form   You can use an optional method (instead of actual cost) for deducting incidental expenses only. State 1040 ez form The amount of the deduction is $5 a day. State 1040 ez form You can use this method only if you did not pay or incur any meal expenses. State 1040 ez form You cannot use this method on any day that you use the standard meal allowance. State 1040 ez form    Federal employees should refer to the Federal Travel Regulations at  www. State 1040 ez form gsa. State 1040 ez form gov. State 1040 ez form Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. State 1040 ez form 50% limit may apply. State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form The 50% limit is explained later under Entertainment Expenses . State 1040 ez form Accountable and nonaccountable plans are discussed later under Reimbursements . State 1040 ez form There is no optional standard lodging amount similar to the standard meal allowance. State 1040 ez form Your allowable lodging expense deduction is your actual cost. State 1040 ez form Who can use the standard meal allowance. State 1040 ez form   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. State 1040 ez form   Use of the standard meal allowance for other travel. State 1040 ez form    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. State 1040 ez form You can also use it to figure your meal expenses when you travel for qualifying educational purposes. State 1040 ez form You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. State 1040 ez form Amount of standard meal allowance. State 1040 ez form   The standard meal allowance is the federal M&IE rate. State 1040 ez form For travel in 2013, the daily rate for most small localities in the United States is $46. State 1040 ez form   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. State 1040 ez form You can find this information (organized by state) on the Internet at www. State 1040 ez form gsa. State 1040 ez form gov. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form   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. State 1040 ez form If you work in the transportation industry, however, see Special rate for transportation workers , later. State 1040 ez form Standard meal allowance for areas outside the continental United States. State 1040 ez form    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. State 1040 ez form The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. State 1040 ez form S. State 1040 ez form Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. State 1040 ez form The Department of State establishes per diem rates for all other foreign areas. State 1040 ez form    You can access per diem rates for non-foreign areas outside the continental United States at: www. State 1040 ez form defensetravel. State 1040 ez form dod. State 1040 ez form mil/site/perdiemCalc. State 1040 ez form cfm. State 1040 ez form You can access all other foreign per diem rates at www. State 1040 ez form state. State 1040 ez form gov/travel/. State 1040 ez form Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. State 1040 ez form Special rate for transportation workers. State 1040 ez form   You can use a special standard meal allowance if you work in the transportation industry. State 1040 ez form 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. State 1040 ez form If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form Travel for days you depart and return. State 1040 ez form   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). State 1040 ez form You can do so by one of two methods. State 1040 ez form Method 1: You can claim 3/4 of the standard meal allowance. State 1040 ez form Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. State 1040 ez form Example. State 1040 ez form Jen is employed in New Orleans as a convention planner. State 1040 ez form In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. State 1040 ez form She left her home in New Orleans at 10 a. State 1040 ez form m. State 1040 ez form on Wednesday and arrived in Washington, DC, at 5:30 p. State 1040 ez form m. State 1040 ez form After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. State 1040 ez form m. State 1040 ez form Jen's employer gave her a flat amount to cover her expenses and included it with her wages. State 1040 ez form 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. State 1040 ez form Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. State 1040 ez form 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. State 1040 ez form Travel in the United States The following discussion applies to travel in the United States. State 1040 ez form For this purpose, the United States includes only the 50 states and the District of Columbia. State 1040 ez form 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. State 1040 ez form See Part of Trip Outside the United States , later. State 1040 ez form Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. State 1040 ez form 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. State 1040 ez form These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. State 1040 ez form Example. State 1040 ez form You work in Atlanta and take a business trip to New Orleans in May. State 1040 ez form On your way home, you stop in Mobile to visit your parents. State 1040 ez form You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. State 1040 ez form If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. State 1040 ez form You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. State 1040 ez form The deduction for your meals is subject to the 50% limit on meals mentioned earlier. State 1040 ez form 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. State 1040 ez form However, you can deduct any expenses you have while at your destination that are directly related to your business. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form For the part of your trip that is inside the United States, use the rules for travel in the United States. State 1040 ez form Travel outside the United States does not include travel from one point in the United States to another point in the United States. State 1040 ez form The following discussion can help you determine whether your trip was entirely within the United States. State 1040 ez form Public transportation. State 1040 ez form   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. State 1040 ez form 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 . State 1040 ez form Example. State 1040 ez form You fly from New York to Puerto Rico with a scheduled stop in Miami. State 1040 ez form You return to New York nonstop. State 1040 ez form 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. State 1040 ez form Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. State 1040 ez form Private car. State 1040 ez form   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. State 1040 ez form Example. State 1040 ez form You travel by car from Denver to Mexico City and return. State 1040 ez form 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. State 1040 ez form The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. State 1040 ez form 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. State 1040 ez form For this purpose, the United States includes only the 50 states and the District of Columbia. State 1040 ez form 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. State 1040 ez form See chapter 1 of Publication 463 for information on luxury water travel. State 1040 ez form 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. State 1040 ez form Travel entirely for business. State 1040 ez form   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. State 1040 ez form Travel considered entirely for business. State 1040 ez form   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. State 1040 ez form Exception 1 - No substantial control. State 1040 ez form   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. State 1040 ez form The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. State 1040 ez form   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. State 1040 ez form    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . State 1040 ez form   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. State 1040 ez form    A self-employed person generally has substantial control over arranging business trips. State 1040 ez form Exception 2 - Outside United States no more than a week. State 1040 ez form   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. State 1040 ez form One week means 7 consecutive days. State 1040 ez form 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. State 1040 ez form Exception 3 - Less than 25% of time on personal activities. State 1040 ez form   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. State 1040 ez form For this purpose, count both the day your trip began and the day it ended. State 1040 ez form Exception 4 - Vacation not a major consideration. State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form You can only deduct the business portion of your cost of getting to and from your destination. State 1040 ez form You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. State 1040 ez form These travel allocation rules are discussed in chapter 1 of Publication 463. State 1040 ez form 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. State 1040 ez form In those cases, you can deduct the total cost of getting to and from your destination. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. State 1040 ez form You cannot deduct the travel expenses for your family. State 1040 ez form If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. State 1040 ez form Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. State 1040 ez form You can deduct your travel expenses only if your attendance is connected to your own trade or business. State 1040 ez form Convention agenda. State 1040 ez form   The convention agenda or program generally shows the purpose of the convention. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form Conventions held outside the North American area. State 1040 ez form    See chapter 1 of Publication 463 for information on conventions held outside the North American area. State 1040 ez form Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. State 1040 ez form 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. State 1040 ez form Directly-related test. State 1040 ez form Associated test. State 1040 ez form Both of these tests are explained in chapter 2 of Publication 463. State 1040 ez form The amount you can deduct for entertainment expenses may be limited. State 1040 ez form Generally, you can deduct only 50% of your unreimbursed entertainment expenses. State 1040 ez form This limit is discussed next. State 1040 ez form 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. State 1040 ez form (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. State 1040 ez form See Individuals subject to “hours of service” limits , later. State 1040 ez form ) 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. State 1040 ez form Figure 26-A summarizes the general rules explained in this section. State 1040 ez form 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. State 1040 ez form Included expenses. State 1040 ez form   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. State 1040 ez form However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. State 1040 ez form Application of 50% limit. State 1040 ez form   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. State 1040 ez form   The 50% limit also applies to certain meal and entertainment expenses that are not business related. State 1040 ez form It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. State 1040 ez form It also applies to the cost of meals included in deductible educational expenses. State 1040 ez form When to apply the 50% limit. State 1040 ez form   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. State 1040 ez form You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. State 1040 ez form Example 1. State 1040 ez form You spend $200 for a business-related meal. State 1040 ez form If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. State 1040 ez form Your deduction cannot be more than $45 (. State 1040 ez form 50 × $90). State 1040 ez form Example 2. State 1040 ez form You purchase two tickets to a concert and give them to a client. State 1040 ez form You purchased the tickets through a ticket agent. State 1040 ez form You paid $200 for the two tickets, which had a face value of $80 each ($160 total). State 1040 ez form Your deduction cannot be more than $80 (. State 1040 ez form 50 × $160). State 1040 ez form Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. State 1040 ez form Figure 26-A can help you determine if the 50% limit applies to you. State 1040 ez form Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. State 1040 ez form Employee's reimbursed expenses. State 1040 ez form   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. State 1040 ez form Accountable plans are discussed later under Reimbursements . State 1040 ez form Individuals subject to “hours of service” limits. State 1040 ez form   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. State 1040 ez form The percentage is 80%. State 1040 ez form   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. State 1040 ez form Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. State 1040 ez form Interstate truck operators and bus drivers who are under Department of Transportation regulations. State 1040 ez form Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. State 1040 ez form Certain merchant mariners who are under Coast Guard regulations. State 1040 ez form Other exceptions. State 1040 ez form   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. State 1040 ez form These are discussed in Publication 463. State 1040 ez form Figure 26-A. State 1040 ez form Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. State 1040 ez form See Exceptions to the 50% Limit . State 1040 ez form Please click here for the text description of the image. State 1040 ez form Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. State 1040 ez form Entertainment. State 1040 ez form    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. State 1040 ez form 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. State 1040 ez form A meal as a form of entertainment. State 1040 ez form   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. State 1040 ez form A meal expense includes the cost of food, beverages, taxes, and tips for the meal. State 1040 ez form To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. State 1040 ez form You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. State 1040 ez form Separating costs. State 1040 ez form   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. State 1040 ez form You must have a reasonable basis for making this allocation. State 1040 ez form For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. State 1040 ez form Taking turns paying for meals or entertainment. State 1040 ez form   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. State 1040 ez form Lavish or extravagant expenses. State 1040 ez form   You cannot deduct expenses for entertainment that are lavish or extravagant. State 1040 ez form An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. State 1040 ez form 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. State 1040 ez form Trade association meetings. State 1040 ez form    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. State 1040 ez form These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. State 1040 ez form Entertainment tickets. State 1040 ez form   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. State 1040 ez form 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. State 1040 ez form What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. State 1040 ez form Club dues and membership fees. State 1040 ez form   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. State 1040 ez form 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. State 1040 ez form   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. State 1040 ez form 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. State 1040 ez form Entertainment facilities. State 1040 ez form   Generally, you cannot deduct any expense for the use of an entertainment facility. State 1040 ez form This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. State 1040 ez form   An entertainment facility is any property you own, rent, or use for entertainment. State 1040 ez form 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. State 1040 ez form Out-of-pocket expenses. State 1040 ez form   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. State 1040 ez form These are not expenses for the use of an entertainment facility. State 1040 ez form However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. State 1040 ez form Additional information. State 1040 ez form   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. State 1040 ez form Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. State 1040 ez form This section explains the limits and rules for deducting the costs of gifts. State 1040 ez form $25 limit. State 1040 ez form   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. State 1040 ez form 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. State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form   If you and your spouse both give gifts, both of you are treated as one taxpayer. State 1040 ez form It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. State 1040 ez form If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. State 1040 ez form Incidental costs. State 1040 ez form   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. State 1040 ez form   A cost is incidental only if it does not add substantial value to the gift. State 1040 ez form For example, the cost of customary gift wrapping is an incidental cost. State 1040 ez form 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. State 1040 ez form Exceptions. State 1040 ez form   The following items are not considered gifts for purposes of the $25 limit. State 1040 ez form 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. State 1040 ez form Examples include pens, desk sets, and plastic bags and cases. State 1040 ez form Signs, display racks, or other promotional material to be used on the business premises of the recipient. State 1040 ez form Gift or entertainment. State 1040 ez form   Any item that might be considered either a gift or entertainment generally will be considered entertainment. State 1040 ez form 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. State 1040 ez form    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. State 1040 ez form You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. State 1040 ez form    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. State 1040 ez form You cannot choose, in this case, to treat the cost of the tickets as a gift expense. State 1040 ez form 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 . State 1040 ez form These expenses include the cost of transportation by air, rail, bus, taxi, etc. State 1040 ez form , and the cost of driving and maintaining your car. State 1040 ez form Transportation expenses include the ordinary and necessary costs of all of the following. State 1040 ez form 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. State 1040 ez form (Tax home is defined earlier under Travel Expenses . State 1040 ez form ) Visiting clients or customers. State 1040 ez form Going to a business meeting away from your regular workplace. State 1040 ez form Getting from your home to a temporary workplace when you have one or more regular places of work. State 1040 ez form These temporary workplaces can be either within the area of your tax home or outside that area. State 1040 ez form Transportation expenses do not include expenses you have while traveling away from home overnight. State 1040 ez form Those expenses are travel expenses, discussed earlier. State 1040 ez form However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. State 1040 ez form See Car Expenses , later. State 1040 ez form Illustration of transportation expenses. State 1040 ez form    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. State 1040 ez form You may want to refer to it when deciding whether you can deduct your transportation expenses. State 1040 ez form Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. State 1040 ez form 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. State 1040 ez form Temporary work location. State 1040 ez form   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. State 1040 ez form   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. State 1040 ez form   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. State 1040 ez form   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. State 1040 ez form It will not be treated as temporary after the date you determine it will last more than 1 year. State 1040 ez form   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. State 1040 ez form You may have deductible travel expenses as discussed earlier in this chapter. State 1040 ez form No regular place of work. State 1040 ez form   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. State 1040 ez form   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. State 1040 ez form   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. State 1040 ez form These are nondeductible commuting expenses. State 1040 ez form Two places of work. State 1040 ez form   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. State 1040 ez form 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. State 1040 ez form   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. State 1040 ez form You cannot deduct them. State 1040 ez form Armed Forces reservists. State 1040 ez form   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. State 1040 ez form You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. State 1040 ez form   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. State 1040 ez form In this case, your transportation generally is a nondeductible commuting expense. State 1040 ez form 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. State 1040 ez form   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. State 1040 ez form   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. State 1040 ez form These expenses are discussed earlier under Travel Expenses . State 1040 ez form   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. State 1040 ez form See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. State 1040 ez form Commuting expenses. State 1040 ez form   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. State 1040 ez form These costs are personal commuting expenses. State 1040 ez form You cannot deduct commuting expenses no matter how far your home is from your regular place of work. State 1040 ez form You cannot deduct commuting expenses even if you work during the commuting trip. State 1040 ez form Example. State 1040 ez form You sometimes use your cell phone to make business calls while commuting to and from work. State 1040 ez form Sometimes business associates ride with you to and from work, and you have a business discussion in the car. State 1040 ez form These activities do not change the trip from personal to business. State 1040 ez form You cannot deduct your commuting expenses. State 1040 ez form Parking fees. State 1040 ez form   Fees you pay to park your car at your place of business are nondeductible commuting expenses. State 1040 ez form You can, however, deduct business-related parking fees when visiting a customer or client. State 1040 ez form Advertising display on car. State 1040 ez form   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. State 1040 ez form If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. State 1040 ez form Car pools. State 1040 ez form   You cannot deduct the cost of using your car in a nonprofit car pool. State 1040 ez form Do not include payments you receive from the passengers in your income. State 1040 ez form These payments are considered reimbursements of your expenses. State 1040 ez form However, if you operate a car pool for a profit, you must include payments from passengers in your income. State 1040 ez form You can then deduct your car expenses (using the rules in this chapter). State 1040 ez form Hauling tools or instruments. State 1040 ez form   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. State 1040 ez form 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). State 1040 ez form Union members' trips from a union hall. State 1040 ez form   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. State 1040 ez form Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. State 1040 ez form Office in the home. State 1040 ez form   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. State 1040 ez form (See chapter 28 for information on determining if your home office qualifies as a principal place of business. State 1040 ez form ) Figure 26-B. State 1040 ez form When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. State 1040 ez form (Do not use this chart if your home is your principal place of business. State 1040 ez form See Office in the home . State 1040 ez form ) Please click here for the text description of the image. State 1040 ez form Figure 26-B. State 1040 ez form Local Transportation Examples of deductible transportation. State 1040 ez form   The following examples show when you can deduct transportation expenses based on the location of your work and your home. State 1040 ez form Example 1. State 1040 ez form You regularly work in an office in the city where you live. State 1040 ez form Your employer sends you to a 1-week training session at a different office in the same city. State 1040 ez form You travel directly from your home to the training location and return each day. State 1040 ez form You can deduct the cost of your daily round-trip transportation between your home and the training location. State 1040 ez form Example 2. State 1040 ez form Your principal place of business is in your home. State 1040 ez form You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. State 1040 ez form Example 3. State 1040 ez form You have no regular office, and you do not have an office in your home. State 1040 ez form In this case, the location of your first business contact inside the metropolitan area is considered your office. State 1040 ez form Transportation expenses between your home and this first contact are nondeductible commuting expenses. State 1040 ez form Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. State 1040 ez form You generally can use one of the two following methods to figure your deductible expenses. State 1040 ez form Standard mileage rate. State 1040 ez form Actual car expenses. State 1040 ez form 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. State 1040 ez form See Leasing a car under Actual Car Expenses, later. State 1040 ez form In this chapter, “car” includes a van, pickup, or panel truck. State 1040 ez form Rural mail carriers. State 1040 ez form   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. State 1040 ez form Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. State 1040 ez form   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). State 1040 ez form You must complete Form 2106 and attach it to your Form 1040. State 1040 ez form   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. State 1040 ez form It is given as an equipment maintenance allowance (EMA) to employees of the U. State 1040 ez form S. State 1040 ez form Postal Service. State 1040 ez form It is at the rate contained in the 1991 collective bargaining agreement. State 1040 ez form Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. State 1040 ez form See your employer for information on your reimbursement. State 1040 ez form If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. State 1040 ez form 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. State 1040 ez form For 2013, the standard mileage rate for business use is 56½ cents per mile. State 1040 ez form 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. State 1040 ez form 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. State 1040 ez form See Reimbursements under How To Report, later. State 1040 ez form Choosing the standard mileage rate. State 1040 ez form   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. State 1040 ez form Then in later years, you can choose to use either the standard mileage rate or actual expenses. State 1040 ez form   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. State 1040 ez form   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. State 1040 ez form You cannot revoke the choice. State 1040 ez form However, in a later year, you can switch from the standard mileage rate to the actual expenses method. State 1040 ez form 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. State 1040 ez form Example. State 1040 ez form Larry is an employee who occasionally uses his own car for business purposes. State 1040 ez form He purchased the car in 2011, but he did not claim any unreimburse
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The State 1040 Ez Form

State 1040 ez form Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. State 1040 ez form More information. State 1040 ez form Exception—Community Income. State 1040 ez form Exception—Qualified joint venture. State 1040 ez form More information. State 1040 ez form More information. State 1040 ez form Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. State 1040 ez form Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. State 1040 ez form Table 1 can help you learn what those responsibilities are. State 1040 ez form Ask yourself each question listed in the table, then see the related discussion to find the answer. State 1040 ez form In addition to knowing about federal taxes, you need to make some basic business decisions. State 1040 ez form Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. State 1040 ez form For information on how to contact the SBA, see How to Get More Information, later. State 1040 ez form Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. State 1040 ez form When beginning a business, you must decide which form of business to use. State 1040 ez form Legal and tax considerations enter into this decision. State 1040 ez form Only tax considerations are discussed in this publication. State 1040 ez form Your form of business determines which income tax return form you have to file. State 1040 ez form See Table 2 to find out which form you have to file. State 1040 ez form Sole proprietorships. State 1040 ez form   A sole proprietorship is an unincorporated business that is owned by one individual. State 1040 ez form It is the simplest form of business organization to start and maintain. State 1040 ez form The business has no existence apart from you, the owner. State 1040 ez form Its liabilities are your personal liabilities. State 1040 ez form You undertake the risks of the business for all assets owned, whether or not used in the business. State 1040 ez form You include the income and expenses of the business on your personal tax return. State 1040 ez form More information. State 1040 ez form   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. State 1040 ez form If you are a farmer, see Publication 225, Farmer's Tax Guide. State 1040 ez form Partnerships. State 1040 ez form   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. State 1040 ez form Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. State 1040 ez form   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. State 1040 ez form , from its operations, but it does not pay income tax. State 1040 ez form Instead, it “passes through” any profits or losses to its partners. State 1040 ez form Each partner includes his or her share of the partnership's items on his or her tax return. State 1040 ez form More information. State 1040 ez form   For more information on partnerships, see Publication 541, Partnerships. State 1040 ez form Husband and wife business. State 1040 ez form   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. State 1040 ez form Do not use Schedule C or C-EZ. State 1040 ez form Instead, file Form 1065, U. State 1040 ez form S. State 1040 ez form Return of Partnership Income. State 1040 ez form For more information, see Publication 541, Partnerships. State 1040 ez form Exception—Community Income. State 1040 ez form   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. State 1040 ez form S. State 1040 ez form possession, you can treat the business either as a sole proprietorship or a partnership. State 1040 ez form The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. State 1040 ez form A change in your reporting position will be treated as a conversion of the entity. State 1040 ez form Exception—Qualified joint venture. State 1040 ez form   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. State 1040 ez form Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. State 1040 ez form For an explanation of "material participation," see the Instructions for Schedule C, line G. State 1040 ez form   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. State 1040 ez form Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. State 1040 ez form For more information, see Qualified Joint Venture in the Instructions for Schedule SE. State 1040 ez form Corporations. State 1040 ez form   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. State 1040 ez form A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. State 1040 ez form A corporation can also take special deductions. State 1040 ez form   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. State 1040 ez form However, shareholders cannot deduct any loss of the corporation. State 1040 ez form More information. State 1040 ez form   For more information on corporations, see Publication 542, Corporations. State 1040 ez form S corporations. State 1040 ez form   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. State 1040 ez form Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. State 1040 ez form On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. State 1040 ez form More information. State 1040 ez form   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. State 1040 ez form S. State 1040 ez form Income Tax Return for an S Corporation. State 1040 ez form Limited liability company. State 1040 ez form   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. State 1040 ez form The members of an LLC are not personally liable for its debts. State 1040 ez form An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. State 1040 ez form 7701-3. State 1040 ez form For more information, see the instructions for Form 8832, Entity Classification Election. State 1040 ez form Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. State 1040 ez form The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). State 1040 ez form An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. State 1040 ez form An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. State 1040 ez form You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. State 1040 ez form You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. State 1040 ez form This includes returns or documents filed to report the following information. State 1040 ez form Interest, dividends, royalties, etc. State 1040 ez form , paid to you. State 1040 ez form Any amount paid to you as a dependent care provider. State 1040 ez form Certain other amounts paid to you that total $600 or more for the year. State 1040 ez form If you do not furnish your identification number as required, you may be subject to penalties. State 1040 ez form See Penalties, later. State 1040 ez form Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. State 1040 ez form If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. State 1040 ez form Applying for an EIN. State 1040 ez form   You may apply for an EIN: Online—Click on the EIN link at www. State 1040 ez form irs. State 1040 ez form gov/businesses/small. State 1040 ez form The EIN is issued immediately once the application information is validated. State 1040 ez form By telephone at 1-800-829-4933. State 1040 ez form By mailing or faxing Form SS-4, Application for Employer Identification Number. State 1040 ez form When to apply. State 1040 ez form   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. State 1040 ez form If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. State 1040 ez form If you apply by telephone or through the IRS website, you can get an EIN immediately. State 1040 ez form If you apply by fax, you can get an EIN within 4 business days. State 1040 ez form   If you do not receive your EIN by the time a return is due, file your return anyway. State 1040 ez form Write “Applied for” and the date you applied for the number in the space for the EIN. State 1040 ez form Do not use your social security number as a substitute for an EIN on your tax returns. State 1040 ez form More than one EIN. State 1040 ez form   You should have only one EIN. State 1040 ez form If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. State 1040 ez form Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. State 1040 ez form The IRS will tell you which number to use. State 1040 ez form More information. State 1040 ez form   For more information about EINs, see Publication 1635, Understanding Your EIN. State 1040 ez form Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). State 1040 ez form The forms used to report these payments must include the payee's identification number. State 1040 ez form Employee. State 1040 ez form   If you have employees, you must get an SSN from each of them. State 1040 ez form Record the name and SSN of each employee exactly as they are shown on the employee's social security card. State 1040 ez form If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. State 1040 ez form This may occur, for example, if the employee's name has changed due to marriage or divorce. State 1040 ez form   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. State 1040 ez form This form is available at SSA offices or by calling 1-800-772-1213. State 1040 ez form It is also available from the SSA website at www. State 1040 ez form ssa. State 1040 ez form gov. State 1040 ez form Other payee. State 1040 ez form   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. State 1040 ez form If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. State 1040 ez form   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. State 1040 ez form This form is available from IRS offices or by calling 1-800-829-3676. State 1040 ez form It is also available from the IRS website at IRS. State 1040 ez form gov. State 1040 ez form    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. State 1040 ez form For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. State 1040 ez form Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. State 1040 ez form A tax year is usually 12 consecutive months. State 1040 ez form There are two kinds of tax years. State 1040 ez form Calendar tax year. State 1040 ez form A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. State 1040 ez form Fiscal tax year. State 1040 ez form A fiscal tax year is 12 consecutive months ending on the last day of any month except December. State 1040 ez form A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. State 1040 ez form If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. State 1040 ez form You must use a calendar tax year if: You keep no books. State 1040 ez form You have no annual accounting period. State 1040 ez form Your present tax year does not qualify as a fiscal year. State 1040 ez form You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. State 1040 ez form For more information, see Publication 538, Accounting Periods and Methods. State 1040 ez form First-time filer. State 1040 ez form   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. State 1040 ez form You adopt a tax year by filing your first income tax return using that tax year. State 1040 ez form You have not adopted a tax year if you merely did any of the following. State 1040 ez form Filed an application for an extension of time to file an income tax return. State 1040 ez form Filed an application for an employer identification number. State 1040 ez form Paid estimated taxes for that tax year. State 1040 ez form Changing your tax year. State 1040 ez form   Once you have adopted your tax year, you may have to get IRS approval to change it. State 1040 ez form To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. State 1040 ez form You may have to pay a fee. State 1040 ez form For more information, see Publication 538. State 1040 ez form Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. State 1040 ez form You choose an accounting method for your business when you file your first income tax return. State 1040 ez form There are two basic accounting methods. State 1040 ez form Cash method. State 1040 ez form Under the cash method, you report income in the tax year you receive it. State 1040 ez form You usually deduct or capitalize expenses in the tax year you pay them. State 1040 ez form Accrual method. State 1040 ez form Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. State 1040 ez form You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. State 1040 ez form For other methods, see Publication 538. State 1040 ez form If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. State 1040 ez form Inventories include goods held for sale in the normal course of business. State 1040 ez form They also include raw materials and supplies that will physically become a part of merchandise intended for sale. State 1040 ez form Inventories are explained in Publication 538. State 1040 ez form Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. State 1040 ez form For more information, see Publication 538. State 1040 ez form You must use the same accounting method to figure your taxable income and to keep your books. State 1040 ez form Also, you must use an accounting method that clearly shows your income. State 1040 ez form In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. State 1040 ez form An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. State 1040 ez form More than one business. State 1040 ez form   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. State 1040 ez form You must keep a complete and separate set of books and records for each business. State 1040 ez form Changing your method of accounting. State 1040 ez form   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. State 1040 ez form A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. State 1040 ez form For examples of changes that require approval and information on how to get approval for the change, see Publication 538. State 1040 ez form Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. State 1040 ez form The following are the four general kinds of business taxes. State 1040 ez form Income tax. State 1040 ez form Self-employment tax. State 1040 ez form Employment taxes. State 1040 ez form Excise taxes. State 1040 ez form See Table 2 for the forms you file to report these taxes. State 1040 ez form You may want to get Publication 509. State 1040 ez form It has tax calendars that tell you when to file returns and make tax payments. State 1040 ez form Income Tax All businesses except partnerships must file an annual income tax return. State 1040 ez form Partnerships file an information return. State 1040 ez form Which form you use depends on how your business is organized. State 1040 ez form See Table 2 to find out which return you have to file. State 1040 ez form The federal income tax is a pay-as-you-go tax. State 1040 ez form You must pay the tax as you earn or receive income during the year. State 1040 ez form An employee usually has income tax withheld from his or her pay. State 1040 ez form If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. State 1040 ez form If you are not required to make estimated tax payments, you may pay any tax due when you file your return. State 1040 ez form Table 2. State 1040 ez form Which Forms Must I File? IF you are a. State 1040 ez form . State 1040 ez form . State 1040 ez form   THEN you may be liable for. State 1040 ez form . State 1040 ez form . State 1040 ez form   Use Form. State 1040 ez form . State 1040 ez form . State 1040 ez form Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. State 1040 ez form 2 Various other schedules may be needed. State 1040 ez form Estimated tax. State 1040 ez form   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. State 1040 ez form Sole proprietors, partners, and S corporation shareholders. State 1040 ez form   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. State 1040 ez form Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. State 1040 ez form For more information, see Publication 505, Tax Withholding and Estimated Tax. State 1040 ez form Corporations. State 1040 ez form   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. State 1040 ez form Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. State 1040 ez form You must deposit the payments as explained later under Depositing Taxes. State 1040 ez form For more information, see Publication 542. State 1040 ez form Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. State 1040 ez form Your payments of SE tax contribute to your coverage under the social security system. State 1040 ez form Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. State 1040 ez form You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. State 1040 ez form Your net earnings from self-employment were $400 or more. State 1040 ez form You had church employee income of $108. State 1040 ez form 28 or more. State 1040 ez form Use Schedule SE (Form 1040) to figure your SE tax. State 1040 ez form For more information, see Publication 334, Tax Guide for Small Business. State 1040 ez form You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. State 1040 ez form The Social Security Administration (SSA) time limit for posting self-employment income. State 1040 ez form   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. State 1040 ez form If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. State 1040 ez form The SSA will not change its records to increase your self-employment income. State 1040 ez form Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. State 1040 ez form Employment taxes include the following. State 1040 ez form Social security and Medicare taxes. State 1040 ez form Federal income tax withholding. State 1040 ez form Federal unemployment (FUTA) tax. State 1040 ez form If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. State 1040 ez form If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. State 1040 ez form These publications explain your tax responsibilities as an employer. State 1040 ez form If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. State 1040 ez form That publication has information to help you determine whether an individual is an employee or an independent contractor. State 1040 ez form If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. State 1040 ez form An independent contractor is someone who is self-employed. State 1040 ez form Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. State 1040 ez form Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. State 1040 ez form To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. State 1040 ez form Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). State 1040 ez form Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. State 1040 ez form Medicare tax pays for benefits under the hospital insurance part of FICA. State 1040 ez form You withhold part of these taxes from your employee's wages and you pay a part yourself. State 1040 ez form To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. State 1040 ez form Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. State 1040 ez form (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. State 1040 ez form ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. State 1040 ez form You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. State 1040 ez form You pay FUTA tax only from your own funds. State 1040 ez form Employees do not pay this tax or have it withheld from their pay. State 1040 ez form Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. State 1040 ez form See Publication 15 to find out if you can use this form. State 1040 ez form Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. State 1040 ez form Form I-9. State 1040 ez form   You must verify that each new employee is legally eligible to work in the United States. State 1040 ez form Both you and the employee must complete the U. State 1040 ez form S. State 1040 ez form Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. State 1040 ez form You can get the form from USCIS offices or from the USCIS website at www. State 1040 ez form uscis. State 1040 ez form gov. State 1040 ez form Call the USCIS at 1-800-375-5283 for more information about your responsibilities. State 1040 ez form Form W-4. State 1040 ez form   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. State 1040 ez form You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. State 1040 ez form For more information, see Publication 15. State 1040 ez form Employees claiming more than 10 withholding allowances. State 1040 ez form   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. State 1040 ez form See section 16 of Publication 15. State 1040 ez form Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. State 1040 ez form You must also send copies to the Social Security Administration. State 1040 ez form See Information Returns, later, for more information on Form W-2. State 1040 ez form Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. State 1040 ez form Manufacture or sell certain products. State 1040 ez form Operate certain kinds of businesses. State 1040 ez form Use various kinds of equipment, facilities, or products. State 1040 ez form Receive payment for certain services. State 1040 ez form For more information on excise taxes, see Publication 510, Excise Taxes. State 1040 ez form Form 720. State 1040 ez form   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. State 1040 ez form Environmental taxes. State 1040 ez form Communications and air transportation taxes. State 1040 ez form Fuel taxes. State 1040 ez form Tax on the first retail sale of heavy trucks, trailers, and tractors. State 1040 ez form Manufacturers taxes on the sale or use of a variety of different articles. State 1040 ez form Form 2290. State 1040 ez form   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. State 1040 ez form The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. State 1040 ez form Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. State 1040 ez form For more information, see the instructions for Form 2290. State 1040 ez form Form 730. State 1040 ez form   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. State 1040 ez form Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. State 1040 ez form Form 11-C. State 1040 ez form   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. State 1040 ez form Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. State 1040 ez form Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). State 1040 ez form Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. State 1040 ez form Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. State 1040 ez form Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. State 1040 ez form The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. State 1040 ez form You must give a copy of each information return you are required to file to the recipient or payer. State 1040 ez form In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. State 1040 ez form For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. State 1040 ez form Form 1099-MISC. State 1040 ez form   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. State 1040 ez form These payments include the following items. State 1040 ez form Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. State 1040 ez form Rent payments of $600 or more, other than rents paid to real estate agents. State 1040 ez form Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. State 1040 ez form Royalty payments of $10 or more. State 1040 ez form Payments to certain crew members by operators of fishing boats. State 1040 ez form You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. State 1040 ez form Form W-2. State 1040 ez form   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. State 1040 ez form For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. State 1040 ez form Form 8300. State 1040 ez form   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. State 1040 ez form Cash includes U. State 1040 ez form S. State 1040 ez form and foreign coin and currency. State 1040 ez form It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. State 1040 ez form For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). State 1040 ez form Penalties The law provides penalties for not filing returns or paying taxes as required. State 1040 ez form Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. State 1040 ez form Failure to file tax returns. State 1040 ez form   If you do not file your tax return by the due date, you may have to pay a penalty. State 1040 ez form The penalty is based on the tax not paid by the due date. State 1040 ez form See your tax return instructions for more information about this penalty. State 1040 ez form Failure to pay tax. State 1040 ez form   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. State 1040 ez form For more information, see your tax return instructions. State 1040 ez form Failure to withhold, deposit, or pay taxes. State 1040 ez form   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. State 1040 ez form You may also be subject to penalties if you deposit the taxes late. State 1040 ez form For more information, see Publication 15. State 1040 ez form Failure to follow information reporting requirements. State 1040 ez form   The following penalties apply if you are required to file information returns. State 1040 ez form For more information, see the General Instructions for Certain Information Returns. State 1040 ez form Failure to file information returns. State 1040 ez form A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. State 1040 ez form Failure to furnish correct payee statements. State 1040 ez form A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. State 1040 ez form Waiver of penalty. State 1040 ez form   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. State 1040 ez form   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. State 1040 ez form (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. State 1040 ez form ) Failure to supply taxpayer identification number. State 1040 ez form   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. State 1040 ez form You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. State 1040 ez form Business Expenses You can deduct business expenses on your income tax return. State 1040 ez form These are the current operating costs of running your business. State 1040 ez form To be deductible, a business expense must be both ordinary and necessary. State 1040 ez form An ordinary expense is one that is common and accepted in your field of business, trade, or profession. State 1040 ez form A necessary expense is one that is helpful and appropriate for your business, trade, or profession. State 1040 ez form An expense does not have to be indispensable to be considered necessary. State 1040 ez form The following are brief explanations of some expenses that are of interest to people starting a business. State 1040 ez form There are many other expenses that you may be able to deduct. State 1040 ez form See your form instructions and Publication 535, Business Expenses. State 1040 ez form Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. State 1040 ez form Your business start-up costs will depend on the type of business you are starting. State 1040 ez form They may include costs for advertising, travel, surveys, and training. State 1040 ez form These costs are generally capital expenses. State 1040 ez form You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). State 1040 ez form You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. State 1040 ez form The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. State 1040 ez form Any remaining cost must be amortized. State 1040 ez form For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. State 1040 ez form Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. State 1040 ez form You must spread the cost over more than one tax year and deduct part of it each year. State 1040 ez form This method of deducting the cost of business property is called depreciation. State 1040 ez form Business property you must depreciate includes the following items. State 1040 ez form Office furniture. State 1040 ez form Buildings. State 1040 ez form Machinery and equipment. State 1040 ez form You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. State 1040 ez form This deduction is known as the “section 179 deduction. State 1040 ez form ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. State 1040 ez form Depreciation must be taken in the year it is allowable. State 1040 ez form Allowable depreciation not taken in a prior year cannot be taken in the current year. State 1040 ez form If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. State 1040 ez form S. State 1040 ez form Individual Income Tax Return, or by changing your accounting method. State 1040 ez form For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. State 1040 ez form Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. State 1040 ez form Even then, your deduction may be limited. State 1040 ez form To qualify to claim expenses for business use of your home, you must meet both the following tests. State 1040 ez form Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. State 1040 ez form Exclusive use. State 1040 ez form   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. State 1040 ez form The area used for business can be a room or other separately identifiable space. State 1040 ez form The space does not need to be marked off by a permanent partition. State 1040 ez form   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. State 1040 ez form Exceptions to exclusive use. State 1040 ez form   You do not have to meet the exclusive use test if either of the following applies. State 1040 ez form You use part of your home for the storage of inventory or product samples. State 1040 ez form You use part of your home as a daycare facility. State 1040 ez form For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). State 1040 ez form Principal place of business. State 1040 ez form   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. State 1040 ez form You use it exclusively and regularly for administrative or management activities of your trade or business. State 1040 ez form You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. State 1040 ez form   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. State 1040 ez form The relative importance of the activities performed at each location. State 1040 ez form If the relative importance factor does not determine your principal place of business, the time spent at each location. State 1040 ez form    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. State 1040 ez form However, for other ways to qualify to deduct home office expenses, see Publication 587. State 1040 ez form Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. State 1040 ez form If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. State 1040 ez form More information. State 1040 ez form   For more information about business use of your home, see Publication 587. State 1040 ez form Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. State 1040 ez form You generally can deduct either your actual expenses or the standard mileage rate. State 1040 ez form Actual expenses. State 1040 ez form   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. State 1040 ez form You can divide your expenses based on the miles driven for each purpose. State 1040 ez form Example. State 1040 ez form You are the sole proprietor of a flower shop. State 1040 ez form You drove your van 20,000 miles during the year. State 1040 ez form 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. State 1040 ez form You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. State 1040 ez form Standard mileage rate. State 1040 ez form   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. State 1040 ez form You can use the standard mileage rate for a vehicle you own or lease. State 1040 ez form The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. State 1040 ez form It is announced annually by the IRS. State 1040 ez form To figure your deduction, multiply your business miles by the standard mileage rate for the year. State 1040 ez form    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. State 1040 ez form However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. State 1040 ez form Choosing the standard mileage rate. State 1040 ez form   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. State 1040 ez form In later years, you can choose to use either the standard mileage rate or actual expenses. State 1040 ez form   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). State 1040 ez form Additional information. State 1040 ez form   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. State 1040 ez form Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. State 1040 ez form It also explains how long you must keep your records for federal tax purposes. State 1040 ez form A sample recordkeeping system is illustrated at the end of this part. State 1040 ez form Why Keep Records? Everyone in business must keep records. State 1040 ez form Good records will help you do the following. State 1040 ez form Monitor the progress of your business. State 1040 ez form   You need good records to monitor the progress of your business. State 1040 ez form Records can show whether your business is improving, which items are selling, or what changes you need to make. State 1040 ez form Good records can increase the likelihood of business success. State 1040 ez form Prepare your financial statements. State 1040 ez form   You need good records to prepare accurate financial statements. State 1040 ez form These include income (profit and loss) statements and balance sheets. State 1040 ez form These statements can help you in dealing with your bank or creditors and help you manage your business. State 1040 ez form An income statement shows the income and expenses of the business for a given period of time. State 1040 ez form A balance sheet shows the assets, liabilities, and your equity in the business on a given date. State 1040 ez form Identify source of receipts. State 1040 ez form   You will receive money or property from many sources. State 1040 ez form Your records can identify the source of your receipts. State 1040 ez form You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. State 1040 ez form Keep track of deductible expenses. State 1040 ez form   You may forget expenses when you prepare your tax return unless you record them when they occur. State 1040 ez form Prepare your tax returns. State 1040 ez form   You need good records to prepare your tax returns. State 1040 ez form These records must support the income, expenses, and credits you report. State 1040 ez form Generally, these are the same records you use to monitor your business and prepare your financial statements. State 1040 ez form Support items reported on tax returns. State 1040 ez form   You must keep your business records available at all times for inspection by the IRS. State 1040 ez form If the IRS examines any of your tax returns, you may be asked to explain the items reported. State 1040 ez form A complete set of records will speed up the examination. State 1040 ez form Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. State 1040 ez form You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. State 1040 ez form The business you are in affects the type of records you need to keep for federal tax purposes. State 1040 ez form You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. State 1040 ez form See Accounting Method, earlier. State 1040 ez form If you are in more than one business, you should keep a complete and separate set of records for each business. State 1040 ez form A corporation should keep minutes of board of directors' meetings. State 1040 ez form Your recordkeeping system should include a summary of your business transactions. State 1040 ez form This summary is ordinarily made in your books (for example, accounting journals and ledgers). State 1040 ez form Your books must show your gross income, as well as your deductions and credits. State 1040 ez form For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. State 1040 ez form In addition, you must keep supporting documents, explained later. State 1040 ez form Electronic records. State 1040 ez form   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. State 1040 ez form When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. State 1040 ez form An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. State 1040 ez form The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. State 1040 ez form All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. State 1040 ez form Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. State 1040 ez form   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. State 1040 ez form You still have the responsibility of retaining any other books and records that are required to be retained. State 1040 ez form   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. State 1040 ez form This test is not considered an examination and the results must be shared with you. State 1040 ez form If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. State 1040 ez form If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. State 1040 ez form For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. State 1040 ez form Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. State 1040 ez form Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. State 1040 ez form These documents contain information you need to record in your books. State 1040 ez form It is important to keep these documents because they support the entries in your books and on your tax return. State 1040 ez form Keep them in an orderly fashion and in a safe place. State 1040 ez form For instance, organize them by year and type of income or expense. State 1040 ez form Gross receipts. State 1040 ez form   Gross receipts are the income you receive from your business. State 1040 ez form You should keep supporting documents that show the amounts and sources of your gross receipts. State 1040 ez form Documents that show gross receipts include the following. State 1040 ez form Cash register tapes. State 1040 ez form Bank deposit slips. State 1040 ez form Receipt books. State 1040 ez form Invoices. State 1040 ez form Credit card charge slips. State 1040 ez form Forms 1099-MISC. State 1040 ez form Purchases. State 1040 ez form   Purchases are the items you buy and resell to customers. State 1040 ez form If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. State 1040 ez form Your supporting documents should show the amount paid and that the amount was for purchases. State 1040 ez form Documents for purchases include the following. State 1040 ez form Canceled checks. State 1040 ez form Cash register tape receipts. State 1040 ez form Credit card sales slips. State 1040 ez form Invoices. State 1040 ez form These records will help you determine the value of your inventory at the end of the year. State 1040 ez form See Publication 538 for information on methods for valuing inventory. State 1040 ez form Expenses. State 1040 ez form   Expenses are the costs you incur (other than purchases) to carry on your business. State 1040 ez form Your supporting documents should show the amount paid and that the amount was for a business expense. State 1040 ez form Documents for expenses include the following. State 1040 ez form Canceled checks. State 1040 ez form Cash register tapes. State 1040 ez form Account statements. State 1040 ez form Credit card sales slips. State 1040 ez form Invoices. State 1040 ez form Petty cash slips for small cash payments. State 1040 ez form    A petty cash fund allows you to make small payments without having to write checks for small amounts. State 1040 ez form Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. State 1040 ez form Travel, transportation, entertainment, and gift expenses. State 1040 ez form   Specific recordkeeping rules apply to these expenses. State 1040 ez form For more information, see Publication 463. State 1040 ez form Employment taxes. State 1040 ez form   There are specific employment tax records you must keep. State 1040 ez form For a list, see Publication 15. State 1040 ez form Assets. State 1040 ez form   Assets are the property, such as machinery and furniture you own and use in your business. State 1040 ez form You must keep records to verify certain information about your business assets. State 1040 ez form You need records to figure the annual depreciation and the gain or loss when you sell the assets. State 1040 ez form Your records should show the following information. State 1040 ez form When and how you acquired the asset. State 1040 ez form Purchase price. State 1040 ez form Cost of any improvements. State 1040 ez form Section 179 deduction taken. State 1040 ez form Deductions taken for depreciation. State 1040 ez form Deductions taken for casualty losses, such as losses resulting from fires or storms. State 1040 ez form How you used the asset. State 1040 ez form When and how you disposed of the asset. State 1040 ez form Selling price. State 1040 ez form Expenses of sale. State 1040 ez form   The following documents may show this information. State 1040 ez form Purchase and sales invoices. State 1040 ez form Real estate closing statements. State 1040 ez form Canceled checks. State 1040 ez form What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. State 1040 ez form These include account statements prepared for the financial institution by a third party. State 1040 ez form These account statements must be highly legible. State 1040 ez form The following table lists acceptable account statements. State 1040 ez form  IF payment is by. State 1040 ez form . State 1040 ez form . State 1040 ez form THEN the statement must show the. State 1040 ez form . State 1040 ez form . State 1040 ez form Check Check number. State 1040 ez form Amount. State 1040 ez form Payee's name. State 1040 ez form Date the check amount was posted to the account by the financial institution. State 1040 ez form Electronic funds transfer Amount transferred. State 1040 ez form Payee's name. State 1040 ez form Date the transfer was posted to the account by the financial institution. State 1040 ez form Credit card Amount charged. State 1040 ez form Payee's name. State 1040 ez form Transaction date. State 1040 ez form    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. State 1040 ez form You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. State 1040 ez form Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. State 1040 ez form (Your business transactions are shown on the supporting documents just discussed. State 1040 ez form ) Business transactions are ordinarily summarized in books called journals and ledgers. State 1040 ez form You can buy them at your local stationery or office supply store. State 1040 ez form A journal is a book where you record each business transaction shown on your supporting documents. State 1040 ez form You may have to keep separate journals for transactions that occur frequently. State 1040 ez form A ledger is a book that contains the totals from all of your journals. State 1040 ez form It is organized into different accounts. State 1040 ez form Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. State 1040 ez form For example, a recordkeeping system for a small business might include the following items. State 1040 ez form Business checkbook. State 1040 ez form Daily summary of cash receipts. State 1040 ez form Monthly summary of cash receipts. State 1040 ez form Check disbursements journal. State 1040 ez form Depreciation worksheet. State 1040 ez form Employee compensation record. State 1040 ez form The business checkbook is explained next. State 1040 ez form The other items are illustrated later under Sample Record System. State 1040 ez form The system you use to record business transactions will be more effective if you follow good recordkeeping practices. State 1040 ez form For example, record expenses when they occur, and identify the source of recorded receipts. State 1040 ez form Generally, it is best to record transactions on a daily basis. State 1040 ez form Business checkbook. State 1040 ez form   One of the first things you should do when you start a business is open a business checking account. State 1040 ez form You should keep your business account separate from your personal checking account. State 1040 ez form   The business checkbook is your basic source of information for recording your business expenses. State 1040 ez form You should deposit all daily receipts in your business checking account. State 1040 ez form You should check your account for errors by reconciling it. State 1040 ez form See Reconciling the checking account, later. State 1040 ez form   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. State 1040 ez form You should also note on the deposit slip the source of the deposit and keep copies of all slips. State 1040 ez form   You should make all payments by check to document business expenses. State 1040 ez form Write checks payable to yourself only when making withdrawals from your business for personal use. State 1040 ez form Avoid writing checks payable to cash. State 1040 ez form If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. State 1040 ez form If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. State 1040 ez form    Use the business account for business purposes only. State 1040 ez form Indicate the source of deposits and the type of expense in the checkbook. State 1040 ez form Reconciling the checking account. State 1040 ez form   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. State 1040 ez form The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. State 1040 ez form   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. State 1040 ez form    You should reconcile your checking account each month. State 1040 ez form     Before you reconcile your monthly bank statement, check your own figures. State 1040 ez form Begin with the balance shown in your checkbook at the end of the previous month. State 1040 ez form To this balance, add the total cash deposited during the month and subtract the total cash disbursements. State 1040 ez form   After checking your figures, the result should agree with your checkbook balance at the end of the month. State 1040 ez form If the result does not agree, you may have made an error in recording a check or deposit. State 1040 ez form You can find the error by doing the following. State 1040 ez form Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. State 1040 ez form If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. State 1040 ez form Adding the deposit amounts in your checkbook. State 1040 ez form Compare that total with the monthly total in your cash receipt book, if you have one. State 1040 ez form If the totals do not agree, check the individual amounts to find any errors. State 1040 ez form   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. State 1040 ez form   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. State 1040 ez form Many banks print a reconciliation worksheet on the back of the statement. State 1040 ez form   To reconcile your account, follow these steps. State 1040 ez form Compare the deposits listed on the bank statement with the deposits shown in your checkbook. State 1040 ez form Note all differences in the dollar amounts. State 1040 ez form Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. State 1040 ez form Note all differences in the dollar amounts. State 1040 ez form Mark the check number in the checkbook as having cleared the bank. State 1040 ez form After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. State 1040 ez form Prepare a bank reconciliation. State 1040 ez form One is illustrated later under Sample Record System. State 1040 ez form Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. State 1040 ez form At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. State 1040 ez form If you still have differences, check the previous steps to find the errors. State 1040 ez form   Table 3. State 1040 ez form Period of Limitations IF you. State 1040 ez form . State 1040 ez form . State 1040 ez form   THEN the period is. State 1040 ez form . State 1040 ez form . State 1040 ez form 1. State 1040 ez form Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. State 1040 ez form Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. State 1040 ez form File a fraudulent return   Not limited 4. State 1040 ez form Do not file a return   Not limited 5. State 1040 ez form File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. State 1040 ez form File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. State 1040 ez form The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. State 1040 ez form You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. State 1040 ez form Single-entry. State 1040 ez form   A single-entry system is based on the income statement (profit or loss statement). State 1040 ez form It can be a simple and practical system if you are starting a small business. State 1040 ez form The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. State 1040 ez form Double-entry. State 1040 ez form   A double-entry bookkeeping system uses journals and ledgers. State 1040 ez form Transactions are first entered in a journal and then posted to ledger accounts. State 1040 ez form These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). State 1040 ez form You close income and expense accounts at the end of each tax year. State 1040 ez form You keep asset, liability, and net worth accounts open on a permanent basis. State 1040 ez form   In the double-entry system, each account has a left side for debits and a right side for credits. State 1040 ez form It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. State 1040 ez form   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. State 1040 ez form If the amounts do not balance, you have made an error and you must find and correct it. State 1040 ez form   An example of a journal entry exhibiting a payment of rent in October is shown next. State 1040 ez form General Journal Date Description of Entry Debit  Credit Oct. State 1040 ez form 5 Rent expense 780. State 1040 ez form 00     Cash   780. State 1040 ez form 00                 Computerized System There are computer software packages you can use for recordkeeping. State 1040 ez form They can be purchased in many retail stores. State 1040 ez form These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. State 1040 ez form If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. State 1040 ez form To meet this qualification, the machine-sensible records must reconcile with your books and return. State 1040 ez form These records must provide enough detail to identify the underlying source documents. State 1040 ez form You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. State 1040 ez form This documentation must be sufficiently detailed to show all of the following items. State 1040 ez form Functions being performed as the data flows through the system. State 1040 ez form Controls used to ensure accurate and reliable processing. State 1040 ez form Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. State 1040 ez form Charts of accounts and detailed account descriptions. State 1040 ez form See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. State 1040 ez form How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. State 1040 ez form Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. State 1040 ez form The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. State 1040 ez form Table 3 contains the periods of limitations that apply to income tax returns. State 1040 ez form Unless otherwise stated, the years refer to the period after the return was filed. State 1040 ez form Returns filed before the due date are treated as filed on the due date. State 1040 ez form Keep copies of your filed tax returns. State 1040 ez form They help in preparing future tax returns and making computations if you file an amended return. State 1040 ez form Employment taxes. State 1040 ez form   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. State 1040 ez form For more information about recordkeeping for employment taxes, see Publication 15. State 1040 ez form Assets. State 1040 ez form   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. State 1040 ez form You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. State 1040 ez form   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. State 1040 ez form You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. State 1040 ez form Records for nontax purposes. State 1040 ez form   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. State 1040 ez form For example, your insurance company or creditors may require you to keep them longer than the IRS does. State 1040 ez form Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. State 1040 ez form Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. State 1040 ez form These sample records should not be viewed as a recommendation of how to keep your records. State 1040 ez form They are intended only to show how one business keeps its records. State 1040 ez form 1. State 1040 ez form Daily Summary of Cash Receipts This summary is a record of cash sales for the day. State 1040 ez form It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. State 1040 ez form Henry takes the cash sales entry from his cash register tape. State 1040 ez form If he had no cash register, he would simply total his cash sale slips and any other cash received that day. State 1040 ez form He carries the total receipts shown in this summary for January 3 ($267. State 1040 ez form 80), including cash sales ($263. State 1040 ez form 60) and sales tax ($4. State 1040 ez form 20), to the Monthly Summary of Cash Receipts. State 1040 ez form Petty cash fund. State 1040 ez form   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. State 1040 ez form Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. State 1040 ez form He sets up a fixed amount ($50) in his petty cash fund. State 1040 ez form The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. State 1040 ez form When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. State 1040 ez form (See the Check Disbursements Journal entry for check number 92. State 1040 ez form ) This restores the fund to its fixed amount of $50. State 1040 ez form He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. State 1040 ez form 2. State 1040 ez form Monthly Summary of Cash Receipts This shows the income activity for the month. State 1040 ez form Henry carries the total monthly net sales shown in this summary for January ($4,865. State 1040 ez form 05) to his Annual Summary. State 1040 ez form To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. State 1040 ez form He cannot take a deduction for sales tax turned over to the state because he only collected the tax. State 1040 ez form He does not include the tax in his income. State 1040 ez form 3. State 1040 ez form Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. State 1040 ez form All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. State 1040 ez form Frequent expenses have their own headings across the sheet. State 1040 ez form He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. State 1040 ez form Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. State 1040 ez form Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. State 1040 ez form If he did, he would record them in the journal, even though he could not deduct them as business expenses. State 1040 ez form Henry carries the January total of expenses for materials ($1,083. State 1040 ez form 50) to the Annual Summary. State 1040 ez form Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. State 1040 ez form , in the appropriate columns of that summary. State 1040 ez form 4. State 1040 ez form Employee Compensation Record This record shows the following information. State 1040 ez form The number of hours Henry's employee worked in a pay period. State 1040 ez form The employee's total pay for the period. State 1040 ez form The deductions Henry withheld in figuring the employee's net pay. State 1040 ez form The monthly gross payroll. State 1040 ez form Henry carries the January gross payroll ($520) to the Annual Summary. State 1040 ez form 5. State 1040 ez form Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. State 1040 ez form He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. State 1040 ez form He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. State 1040 ez form As in the journal, he keeps each major expense in a separate column. State 1040 ez form Henry carries the cash receipts total shown in the annual summary ($47,440. State 1040 ez form 9