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State taxes online for free Publication 555 - Additional Material Prev  Up  Next   Home   More Online Publications
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Commissioner John Koskinen

John Koskinen is the 48th IRS Commissioner. As Commissioner, he presides over the nation’s tax system, which collects approximately $2.4 trillion in tax revenue each year. This revenue funds most government operations and public services. Mr. Koskinen manages an agency of about 90,000 employees and a budget of approximately $11 billion.

In his role leading the IRS, Mr. Koskinen is working to ensure that the agency maintains an appropriate balance between taxpayer service and tax enforcement and administers the tax code with fairness and integrity.

Prior to his appointment, Mr. Koskinen served as the non-executive chairman of Freddie Mac from 2008 to 2012 and its acting chief executive officer in 2009. Previously, Mr. Koskinen served as President of the U.S. Soccer Foundation, Deputy Mayor and City Administrator of Washington D.C., Assistant to the President and Chair of the President's Council on Year 2000 Conversion and Deputy Director for Management at the Office of Management and Budget. Mr. Koskinen also spent 21 years in the private sector in various leadership positions with the Palmieri Company, including President and Chief Executive Officer, helping to turn around large, troubled organizations. He began his career clerking for Chief Judge David L. Bazelon of the DC Circuit Court of Appeals in 1965, practiced law with the firm of Gibson, Dunn and Crutcher and served as Assistant to the Deputy Executive Director of the National Advisory Commission on Civil Disorders, also known as the Kerner Commission. Mr. Koskinen also served as Legislative Assistant to New York Mayor John Lindsay and Administrative Assistant to Sen. Abraham Ribicoff of Connecticut.

Mr. Koskinen holds a Law Degree from Yale University School of Law and a Bachelor’s Degree from Duke University. He also studied International Law for one year in Cambridge, England. He and his wife Patricia have two grown children and live in Washington, DC.

 

Page Last Reviewed or Updated: 14-Feb-2014

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State taxes online for free 8. State taxes online for free   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. State taxes online for free Cash method. State taxes online for free Car and Truck ExpensesOffice in the home. State taxes online for free Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. State taxes online for free InsuranceHow to figure the deduction. State taxes online for free Interest Legal and Professional FeesTax preparation fees. State taxes online for free Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. State taxes online for free Taxi, commuter bus, and limousine. State taxes online for free Baggage and shipping. State taxes online for free Car or truck. State taxes online for free Meals and lodging. State taxes online for free Cleaning. State taxes online for free Telephone. State taxes online for free Tips. State taxes online for free More information. State taxes online for free Business Use of Your HomeExceptions to exclusive use. State taxes online for free Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. State taxes online for free These costs are known as business expenses. State taxes online for free These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. State taxes online for free To be deductible, a business expense must be both ordinary and necessary. State taxes online for free An ordinary expense is one that is common and accepted in your field of business. State taxes online for free A necessary expense is one that is helpful and appropriate for your business. State taxes online for free An expense does not have to be indispensable to be considered necessary. State taxes online for free For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. State taxes online for free If you have an expense that is partly for business and partly personal, separate the personal part from the business part. State taxes online for free The personal part is not deductible. State taxes online for free Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. State taxes online for free Bad Debts If someone owes you money you cannot collect, you have a bad debt. State taxes online for free There are two kinds of bad debts, business bad debts and nonbusiness bad debts. State taxes online for free A business bad debt is generally one that comes from operating your trade or business. State taxes online for free You may be able to deduct business bad debts as an expense on your business tax return. State taxes online for free Business bad debt. State taxes online for free   A business bad debt is a loss from the worthlessness of a debt that was either of the following. State taxes online for free Created or acquired in your business. State taxes online for free Closely related to your business when it became partly or totally worthless. State taxes online for free A debt is closely related to your business if your primary motive for incurring the debt is a business reason. State taxes online for free   Business bad debts are mainly the result of credit sales to customers. State taxes online for free They can also be the result of loans to suppliers, clients, employees, or distributors. State taxes online for free Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. State taxes online for free If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. State taxes online for free    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. State taxes online for free Accrual method. State taxes online for free   If you use an accrual method of accounting, you normally report income as you earn it. State taxes online for free You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. State taxes online for free Cash method. State taxes online for free   If you use the cash method of accounting, you normally report income when you receive payment. State taxes online for free You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. State taxes online for free More information. State taxes online for free   For more information about business bad debts, see chapter 10 in Publication 535. State taxes online for free Nonbusiness bad debts. State taxes online for free   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). State taxes online for free For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. State taxes online for free Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. State taxes online for free You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. State taxes online for free You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. State taxes online for free See Form 8936 and Form 8910 for more information. State taxes online for free Local transportation expenses. State taxes online for free   Local transportation expenses include the ordinary and necessary costs of all the following. State taxes online for free Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. State taxes online for free Tax home is defined later. State taxes online for free Visiting clients or customers. State taxes online for free Going to a business meeting away from your regular workplace. State taxes online for free Getting from your home to a temporary workplace when you have one or more regular places of work. State taxes online for free These temporary workplaces can be either within the area of your tax home or outside that area. State taxes online for free Local business transportation does not include expenses you have while traveling away from home overnight. State taxes online for free Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. State taxes online for free 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 taxes online for free   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. State taxes online for free It includes the entire city or general area in which your business or work is located. State taxes online for free Example. State taxes online for free You operate a printing business out of rented office space. State taxes online for free You use your van to deliver completed jobs to your customers. State taxes online for free You can deduct the cost of round-trip transportation between your customers and your print shop. State taxes online for free    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. State taxes online for free These costs are personal commuting expenses. State taxes online for free Office in the home. State taxes online for free   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. State taxes online for free For more information, see Business Use of Your Home, later. State taxes online for free Example. State taxes online for free You are a graphics designer. State taxes online for free You operate your business out of your home. State taxes online for free Your home qualifies as your principal place of business. State taxes online for free You occasionally have to drive to your clients to deliver your completed work. State taxes online for free You can deduct the cost of the round-trip transportation between your home and your clients. State taxes online for free Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. State taxes online for free Standard mileage rate. State taxes online for free Actual expenses. State taxes online for free Standard mileage rate. State taxes online for free   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 taxes online for free For 2013, the standard mileage rate is 56. State taxes online for free 5 cents per mile. State taxes online for free    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. State taxes online for free Choosing the standard mileage rate. State taxes online for free   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. State taxes online for free In later years, you can choose to use either the standard mileage rate or actual expenses. State taxes online for free   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 taxes online for free Standard mileage rate not allowed. State taxes online for free   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. State taxes online for free Parking fees and tolls. State taxes online for free   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. State taxes online for free (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. State taxes online for free ) Actual expenses. State taxes online for free   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. State taxes online for free    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. State taxes online for free   Actual car expenses include the costs of the following items. State taxes online for free 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 taxes online for free You can divide your expenses based on the miles driven for each purpose. State taxes online for free Example. State taxes online for free You are the sole proprietor of a flower shop. State taxes online for free You drove your van 20,000 miles during the year. State taxes online for free 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). State taxes online for free You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. State taxes online for free More information. State taxes online for free   For more information about the rules for claiming car and truck expenses, see Publication 463. State taxes online for free Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. State taxes online for free The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. State taxes online for free For details, see chapter 11 in Publication 535. State taxes online for free That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. State taxes online for free Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. State taxes online for free You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. State taxes online for free This method of deducting the cost of business property is called depreciation. State taxes online for free The discussion here is brief. State taxes online for free You will find more information about depreciation in Publication 946. State taxes online for free What property can be depreciated?   You can depreciate property if it meets all the following requirements. State taxes online for free It must be property you own. State taxes online for free It must be used in business or held to produce income. State taxes online for free You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. State taxes online for free It must have a useful life that extends substantially beyond the year it is placed in service. State taxes online for free It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. State taxes online for free You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. State taxes online for free It must not be excepted property. State taxes online for free This includes property placed in service and disposed of in the same year. State taxes online for free Repairs. State taxes online for free    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. State taxes online for free You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. State taxes online for free Depreciation method. State taxes online for free   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). State taxes online for free MACRS is discussed in detail in Publication 946. State taxes online for free Section 179 deduction. State taxes online for free   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. State taxes online for free This deduction is known as the “section 179 deduction. State taxes online for free ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). State taxes online for free See IRC 179(e). State taxes online for free   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. State taxes online for free The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). State taxes online for free Special rules apply to trucks and vans. State taxes online for free For more information, see Publication 946. State taxes online for free It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. State taxes online for free    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. State taxes online for free For more information, see the Instructions for Form 4562 or Publication 946. State taxes online for free Listed property. State taxes online for free   You must follow special rules and recordkeeping requirements when depreciating listed property. State taxes online for free Listed property is any of the following. State taxes online for free Most passenger automobiles. State taxes online for free Most other property used for transportation. State taxes online for free Any property of a type generally used for entertainment, recreation, or amusement. State taxes online for free Certain computers and related peripheral equipment. State taxes online for free   For more information about listed property, see Publication 946. State taxes online for free Form 4562. State taxes online for free   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. State taxes online for free Depreciation on property placed in service during the current tax year. State taxes online for free A section 179 deduction. State taxes online for free Depreciation on any listed property (regardless of when it was placed in service). State taxes online for free    If you have to use Form 4562, you must file Schedule C. State taxes online for free You cannot use Schedule C-EZ. State taxes online for free   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. State taxes online for free The pay may be in cash, property, or services. State taxes online for free To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. State taxes online for free In addition, the pay must meet both the following tests. State taxes online for free The pay must be reasonable. State taxes online for free The pay must be for services performed. State taxes online for free Chapter 2 in Publication 535 explains and defines these requirements. State taxes online for free You cannot deduct your own salary or any personal withdrawals you make from your business. State taxes online for free As a sole proprietor, you are not an employee of the business. State taxes online for free If you had employees during the year, you must use Schedule C. State taxes online for free You cannot use Schedule C-EZ. State taxes online for free Kinds of pay. State taxes online for free   Some of the ways you may provide pay to your employees are listed below. State taxes online for free For an explanation of each of these items, see chapter 2 in Publication 535. State taxes online for free Awards. State taxes online for free Bonuses. State taxes online for free Education expenses. State taxes online for free Fringe benefits (discussed later). State taxes online for free Loans or advances you do not expect the employee to repay if they are for personal services actually performed. State taxes online for free Property you transfer to an employee as payment for services. State taxes online for free Reimbursements for employee business expenses. State taxes online for free Sick pay. State taxes online for free Vacation pay. State taxes online for free Fringe benefits. State taxes online for free   A fringe benefit is a form of pay for the performance of services. State taxes online for free The following are examples of fringe benefits. State taxes online for free Benefits under qualified employee benefit programs. State taxes online for free Meals and lodging. State taxes online for free The use of a car. State taxes online for free Flights on airplanes. State taxes online for free Discounts on property or services. State taxes online for free Memberships in country clubs or other social clubs. State taxes online for free Tickets to entertainment or sporting events. State taxes online for free   Employee benefit programs include the following. State taxes online for free Accident and health plans. State taxes online for free Adoption assistance. State taxes online for free Cafeteria plans. State taxes online for free Dependent care assistance. State taxes online for free Educational assistance. State taxes online for free Group-term life insurance coverage. State taxes online for free Welfare benefit funds. State taxes online for free   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. State taxes online for free For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. State taxes online for free If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. State taxes online for free    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. State taxes online for free For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. State taxes online for free Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. State taxes online for free Fire, theft, flood, or similar insurance. State taxes online for free Credit insurance that covers losses from business bad debts. State taxes online for free Group hospitalization and medical insurance for employees, including long-term care insurance. State taxes online for free Liability insurance. State taxes online for free Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. State taxes online for free Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. State taxes online for free Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. State taxes online for free Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. State taxes online for free Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. State taxes online for free If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. State taxes online for free If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. State taxes online for free Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. State taxes online for free Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. State taxes online for free Nondeductible premiums. State taxes online for free   You cannot deduct premiums on the following kinds of insurance. State taxes online for free Self-insurance reserve funds. State taxes online for free You cannot deduct amounts credited to a reserve set up for self-insurance. State taxes online for free This applies even if you cannot get business insurance coverage for certain business risks. State taxes online for free However, your actual losses may be deductible. State taxes online for free For more information, see Publication 547, Casualties, Disasters, and Thefts. State taxes online for free Loss of earnings. State taxes online for free You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. State taxes online for free However, see item (8) in the previous list. State taxes online for free Certain life insurance and annuities. State taxes online for free For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. State taxes online for free You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. State taxes online for free A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. State taxes online for free For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. State taxes online for free The disallowance applies without regard to whom the policy covers. State taxes online for free Insurance to secure a loan. State taxes online for free If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. State taxes online for free Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. State taxes online for free In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. State taxes online for free Self-employed health insurance deduction. State taxes online for free   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. State taxes online for free How to figure the deduction. State taxes online for free   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. State taxes online for free However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. State taxes online for free You have more than one source of income subject to self-employment tax. State taxes online for free You file Form 2555 or Form 2555-EZ (relating to foreign earned income). State taxes online for free You are using amounts paid for qualified long-term care insurance to figure the deduction. State taxes online for free Prepayment. State taxes online for free   You cannot deduct expenses in advance, even if you pay them in advance. State taxes online for free This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. State taxes online for free Example. State taxes online for free In 2013, you signed a 3-year insurance contract. State taxes online for free Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. State taxes online for free You can deduct in 2014 and 2015 the premium allocable to those years. State taxes online for free More information. State taxes online for free   For more information about deducting insurance, see chapter 6 in Publication 535. State taxes online for free Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. State taxes online for free Interest relates to your business if you use the proceeds of the loan for a business expense. State taxes online for free It does not matter what type of property secures the loan. State taxes online for free You can deduct interest on a debt only if you meet all of the following requirements. State taxes online for free You are legally liable for that debt. State taxes online for free Both you and the lender intend that the debt be repaid. State taxes online for free You and the lender have a true debtor-creditor relationship. State taxes online for free You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. State taxes online for free If a loan is part business and part personal, you must divide the interest between the personal part and the business part. State taxes online for free Example. State taxes online for free In 2013, you paid $600 interest on a car loan. State taxes online for free During 2013, you used the car 60% for business and 40% for personal purposes. State taxes online for free You are claiming actual expenses on the car. State taxes online for free You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. State taxes online for free The remaining interest of $240 is a nondeductible personal expense. State taxes online for free More information. State taxes online for free   For more information about deducting interest, see chapter 4 in Publication 535. State taxes online for free That chapter explains the following items. State taxes online for free Interest you can deduct. State taxes online for free Interest you cannot deduct. State taxes online for free How to allocate interest between personal and business use. State taxes online for free When to deduct interest. State taxes online for free The rules for a below-market interest rate loan. State taxes online for free (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. State taxes online for free ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. State taxes online for free However, you usually cannot deduct legal fees you pay to acquire business assets. State taxes online for free Add them to the basis of the property. State taxes online for free If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. State taxes online for free The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. State taxes online for free For more information, see Publication 529, Miscellaneous Deductions. State taxes online for free Tax preparation fees. State taxes online for free   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. State taxes online for free You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. State taxes online for free   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. State taxes online for free Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. State taxes online for free SEP (Simplified Employee Pension) plans. State taxes online for free SIMPLE (Savings Incentive Match Plan for Employees) plans. State taxes online for free Qualified plans (including Keogh or H. State taxes online for free R. State taxes online for free 10 plans). State taxes online for free SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. State taxes online for free You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. State taxes online for free If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. State taxes online for free You can also deduct trustees' fees if contributions to the plan do not cover them. State taxes online for free Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. State taxes online for free You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. State taxes online for free Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. State taxes online for free These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. State taxes online for free For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). State taxes online for free Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. State taxes online for free Rent Expense Rent is any amount you pay for the use of property you do not own. State taxes online for free In general, you can deduct rent as a business expense only if the rent is for property you use in your business. State taxes online for free If you have or will receive equity in or title to the property, you cannot deduct the rent. State taxes online for free Unreasonable rent. State taxes online for free   You cannot take a rental deduction for unreasonable rents. State taxes online for free Ordinarily, the issue of reasonableness arises only if you and the lessor are related. State taxes online for free Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. State taxes online for free Rent is not unreasonable just because it is figured as a percentage of gross receipts. State taxes online for free   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. State taxes online for free For a list of the other related persons, see section 267 of the Internal Revenue Code. State taxes online for free Rent on your home. State taxes online for free   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. State taxes online for free You must meet the requirements for business use of your home. State taxes online for free For more information, see Business Use of Your Home , later. State taxes online for free Rent paid in advance. State taxes online for free   Generally, rent paid in your business is deductible in the year paid or accrued. State taxes online for free If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. State taxes online for free You can deduct the rest of your payment only over the period to which it applies. State taxes online for free More information. State taxes online for free   For more information about rent, see chapter 3 in Publication 535. State taxes online for free Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. State taxes online for free Income taxes. State taxes online for free   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. State taxes online for free You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. State taxes online for free Do not deduct federal income tax. State taxes online for free Employment taxes. State taxes online for free   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. State taxes online for free Employment taxes are discussed briefly in chapter 1. State taxes online for free You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. State taxes online for free Deduct these payments as taxes. State taxes online for free Self-employment tax. State taxes online for free   You can deduct one-half of your self-employment tax on line 27 of Form 1040. State taxes online for free Self-employment tax is discussed in chapters 1 and 10. State taxes online for free Personal property tax. State taxes online for free   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. State taxes online for free   You can also deduct registration fees for the right to use property within a state or local area. State taxes online for free Example. State taxes online for free May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. State taxes online for free They had to pay $25 for their annual state license tags and $20 for their city registration sticker. State taxes online for free They also paid $235 in city personal property tax on the car, for a total of $280. State taxes online for free They are claiming their actual car expenses. State taxes online for free Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. State taxes online for free Real estate taxes. State taxes online for free   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. State taxes online for free Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. State taxes online for free The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. State taxes online for free   For more information about real estate taxes, see chapter 5 in Publication 535. State taxes online for free That chapter explains special rules for deducting the following items. State taxes online for free Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. State taxes online for free Real estate taxes when you buy or sell property during the year. State taxes online for free Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. State taxes online for free Sales tax. State taxes online for free   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. State taxes online for free If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. State taxes online for free If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. State taxes online for free If the property is depreciable, add the sales tax to the basis for depreciation. State taxes online for free For information on the basis of property, see Publication 551, Basis of Assets. State taxes online for free    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. State taxes online for free Do not include these taxes in gross receipts or sales. State taxes online for free Excise taxes. State taxes online for free   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. State taxes online for free Excise taxes are discussed briefly in chapter 1. State taxes online for free Fuel taxes. State taxes online for free   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. State taxes online for free Do not deduct these taxes as a separate item. State taxes online for free   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. State taxes online for free For more information, see Publication 510, Excise Taxes. State taxes online for free Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. State taxes online for free Table 8-1. State taxes online for free When Are Entertainment Expenses Deductible? (Note. State taxes online for free The following is a summary of the rules for deducting entertainment expenses. State taxes online for free For more details about these rules, see Publication 463. State taxes online for free ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. State taxes online for free Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. State taxes online for free An ordinary expense is one that is common and accepted in your field of business, trade, or profession. State taxes online for free A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. State taxes online for free Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. State taxes online for free   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. State taxes online for free Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. State taxes online for free You cannot deduct expenses that are lavish or extravagant under the circumstances. State taxes online for free You generally can deduct only 50% of your unreimbursed entertainment expenses. State taxes online for free Travel expenses. State taxes online for free   These are the ordinary and necessary expenses of traveling away from home for your business. State taxes online for free You are traveling away from home if both the following conditions are met. State taxes online for free 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. State taxes online for free You need to get sleep or rest to meet the demands of your work while away from home. State taxes online for free Generally, your tax home is your regular place of business, regardless of where you maintain your family home. State taxes online for free It includes the entire city or general area in which your business is located. State taxes online for free See Publication 463 for more information. State taxes online for free   The following is a brief discussion of the expenses you can deduct. State taxes online for free Transportation. State taxes online for free   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. State taxes online for free Taxi, commuter bus, and limousine. State taxes online for free   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. State taxes online for free Baggage and shipping. State taxes online for free   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. State taxes online for free Car or truck. State taxes online for free   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. State taxes online for free You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. State taxes online for free If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. State taxes online for free Meals and lodging. State taxes online for free   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. State taxes online for free In most cases, you can deduct only 50% of your meal expenses. State taxes online for free Cleaning. State taxes online for free   You can deduct the costs of dry cleaning and laundry while on your business trip. State taxes online for free Telephone. State taxes online for free   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. State taxes online for free Tips. State taxes online for free   You can deduct the tips you pay for any expense in this list. State taxes online for free More information. State taxes online for free   For more information about travel expenses, see Publication 463. State taxes online for free Entertainment expenses. State taxes online for free   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. State taxes online for free In most cases, you can deduct only 50% of these expenses. State taxes online for free   The following are examples of entertainment expenses. State taxes online for free Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. State taxes online for free Providing meals, a hotel suite, or a car to business customers or their families. State taxes online for free To be deductible, the expenses must meet the rules listed in Table 8-1. State taxes online for free For details about these rules, see Publication 463. State taxes online for free Reimbursing your employees for expenses. State taxes online for free   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. State taxes online for free The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. State taxes online for free For details, see chapter 11 in Publication 535. State taxes online for free That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. State taxes online for free Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. State taxes online for free Even then, your deduction may be limited. State taxes online for free To qualify to claim expenses for business use of your home, you must meet the following tests. State taxes online for free Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your 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 business, or A separate structure (not attached to your home) you use in connection with your business. State taxes online for free Exclusive use. State taxes online for free   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. State taxes online for free The area used for business can be a room or other separately identifiable space. State taxes online for free The space does not need to be marked off by a permanent partition. State taxes online for free   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 taxes online for free Example. State taxes online for free You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. State taxes online for free Your family also uses the den for recreation. State taxes online for free The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. State taxes online for free Exceptions to exclusive use. State taxes online for free   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. State taxes online for free For the storage of inventory or product samples. State taxes online for free As a daycare facility. State taxes online for free For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). State taxes online for free Regular use. State taxes online for free   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. State taxes online for free You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. State taxes online for free Principal place of business. State taxes online for free   You can have more than one business location, including your home, for a single trade or business. State taxes online for free To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. State taxes online for free To determine your principal place of business, you must consider all the facts and circumstances. State taxes online for free   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. State taxes online for free You use it exclusively and regularly for administrative or management activities of your business. State taxes online for free You have no other fixed location where you conduct substantial administrative or management activities of your business. State taxes online for free   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 taxes online for free The relative importance of the activities performed at each location. State taxes online for free If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. State taxes online for free   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. State taxes online for free However, for other ways to qualify to deduct home office expenses, see Publication 587. State taxes online for free Deduction limit. State taxes online for free   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. State taxes online for free If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. State taxes online for free   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. State taxes online for free The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). State taxes online for free The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. State taxes online for free Do not include in (2) above your deduction for one-half of your self-employment tax. State taxes online for free   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. State taxes online for free New simplified method. State taxes online for free    The IRS now provides a simplified method to determine your expenses for business use of your home. State taxes online for free The simplified method is an alternative to calculating and substantiating actual expenses. State taxes online for free In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. State taxes online for free The area you use to figure your deduction is limited to 300 square feet. State taxes online for free For more information, see the Instructions for Schedule C. State taxes online for free More information. State taxes online for free   For more information on deducting expenses for the business use of your home, see Publication 587. State taxes online for free Other Expenses You Can Deduct You may also be able to deduct the following expenses. State taxes online for free See Publication 535 to find out whether you can deduct them. State taxes online for free Advertising. State taxes online for free Bank fees. State taxes online for free Donations to business organizations. State taxes online for free Education expenses. State taxes online for free Energy efficient commercial buildings deduction expenses. State taxes online for free Impairment-related expenses. State taxes online for free Interview expense allowances. State taxes online for free Licenses and regulatory fees. State taxes online for free Moving machinery. State taxes online for free Outplacement services. State taxes online for free Penalties and fines you pay for late performance or nonperformance of a contract. State taxes online for free Repairs that keep your property in a normal efficient operating condition. State taxes online for free Repayments of income. State taxes online for free Subscriptions to trade or professional publications. State taxes online for free Supplies and materials. State taxes online for free Utilities. State taxes online for free Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. State taxes online for free For more information, see Publication 535. State taxes online for free Bribes and kickbacks. State taxes online for free Charitable contributions. State taxes online for free Demolition expenses or losses. State taxes online for free Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. State taxes online for free Lobbying expenses. State taxes online for free Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. State taxes online for free Personal, living, and family expenses. State taxes online for free Political contributions. State taxes online for free Repairs that add to the value of your property or significantly increase its life. 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