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Tax Return 2012

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Tax Return 2012

Tax return 2012 Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Tax return 2012 Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Tax return 2012 An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Tax return 2012 7701-3. Tax return 2012 The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Tax return 2012 Check your state's requirements and the federal tax regulations for further information. Tax return 2012 Classification of an LLC Default classification rules. Tax return 2012   An LLC with at least two members is classified as a partnership for federal income tax purposes. Tax return 2012 An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Tax return 2012 Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Tax return 2012 Elected classification. Tax return 2012   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Tax return 2012 After an LLC has determined its federal tax classification, it can later elect to change that classification. Tax return 2012 For details, see Subsequent Elections, later. Tax return 2012 LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Tax return 2012 S. Tax return 2012 Return of Partnership Income. Tax return 2012 Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Tax return 2012 For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Tax return 2012 For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Tax return 2012 469-5T(e)). Tax return 2012 See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Tax return 2012 Member manager. Tax return 2012   Only a member manager of an LLC can sign the partnership tax return. Tax return 2012 And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Tax return 2012 A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Tax return 2012 If there are no elected or designated member managers, each owner is treated as a member manager. Tax return 2012 Change in default classification. Tax return 2012   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Tax return 2012 7701-3(f)(2). Tax return 2012 However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Tax return 2012   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Tax return 2012 If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Tax return 2012 Example 1. Tax return 2012 Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Tax return 2012 Each holds an equal membership interest. Tax return 2012 The LLC does not hold any unrealized receivables or substantially appreciated inventory. Tax return 2012 Ethel sells her entire interest in the LLC to Francis for $10,000. Tax return 2012 After the sale, the business is continued by the LLC, which is owned solely by Francis. Tax return 2012 No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Tax return 2012 The partnership terminates when Francis buys Ethel's entire interest. Tax return 2012 Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Tax return 2012 For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Tax return 2012 Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Tax return 2012 Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Tax return 2012 Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Tax return 2012 See Partnership Distributions in Publication 541. Tax return 2012 Example 2. Tax return 2012 George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Tax return 2012 Each holds an equal membership interest. Tax return 2012 The LLC does not hold any unrealized receivables or substantially appreciated inventory. Tax return 2012 George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Tax return 2012 After the sale, the business is continued by the LLC, which is owned solely by Ian. Tax return 2012 No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Tax return 2012 The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Tax return 2012 George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Tax return 2012 For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Tax return 2012 Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Tax return 2012   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Tax return 2012 R. Tax return 2012 B. Tax return 2012 6. Tax return 2012 You can find Revenue Ruling 99-6 at www. Tax return 2012 irs. Tax return 2012 gov/pub/irs-irbs/irb99-06. Tax return 2012 pdf. Tax return 2012 LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Tax return 2012 For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Tax return 2012 Employment tax and certain excise taxes. Tax return 2012   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Tax return 2012 For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Tax return 2012 A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Tax return 2012 See the employment and excise tax returns for more information. Tax return 2012 Self-employment tax rule for disregarded entity LLCs. Tax return 2012   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Tax return 2012 Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Tax return 2012 Example 3. Tax return 2012 LLC is a disregarded entity owned by Irene. Tax return 2012 LLC has three employees (Kent, Patricia, and Tex) and pays wages. Tax return 2012 LLC is treated as an entity separate from its owner for purposes of employment taxes. Tax return 2012 For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Tax return 2012 In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Tax return 2012 Irene is self-employed for purposes of the self-employment tax. Tax return 2012 Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Tax return 2012 Irene is not an employee of LLC for purposes of employment taxes. Tax return 2012 Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Tax return 2012 Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Tax return 2012 Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Tax return 2012 Taxpayer identification number. Tax return 2012   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Tax return 2012 This includes all information returns and reporting related to income tax. Tax return 2012 For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Tax return 2012   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Tax return 2012 An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Tax return 2012 See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Tax return 2012 Change in default classification. Tax return 2012   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Tax return 2012 7701-3(f)(2). Tax return 2012 However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Tax return 2012   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Tax return 2012 If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Tax return 2012 Example 4. Tax return 2012 Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Tax return 2012 Alain does not contribute any portion of the $5,000 to the LLC. Tax return 2012 Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Tax return 2012 The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Tax return 2012 Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Tax return 2012 Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Tax return 2012 Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Tax return 2012 Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Tax return 2012 Example 5. Tax return 2012 Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Tax return 2012 The LLC uses all of the contributed cash in its business. Tax return 2012 Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Tax return 2012 The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Tax return 2012 Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Tax return 2012 Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Tax return 2012 Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Tax return 2012   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Tax return 2012 R. Tax return 2012 B. Tax return 2012 8. Tax return 2012 You can find Revenue Ruling 99-5 at www. Tax return 2012 irs. Tax return 2012 gov/pub/irs-irbs/irb99-06. Tax return 2012 pdf. Tax return 2012 LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Tax return 2012 File Form 8832, Entity Classification Election, to elect classification as a C corporation. Tax return 2012 File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Tax return 2012 LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Tax return 2012 By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Tax return 2012 If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Tax return 2012 Example 6. Tax return 2012 Classification as a corporation without an S election. Tax return 2012 Wanda and Sylvester are members of an LLC. Tax return 2012 They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Tax return 2012 The LLC must file Form 8832. Tax return 2012 Example 7. Tax return 2012 Classification as a corporation with an S election. Tax return 2012 Evelyn and Carol are members of an LLC. Tax return 2012 They agree that the LLC should be classified as an S corporation. Tax return 2012 The LLC must file Form 2553 instead of Form 8832. Tax return 2012 If the LLC is classified as a corporation, it must file a corporation income tax return. Tax return 2012 If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Tax return 2012 If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Tax return 2012 Corporations generally file either: Form 1120, U. Tax return 2012 S. Tax return 2012 Corporation Income Tax Return; or Form 1120S, U. Tax return 2012 S. Tax return 2012 Income Tax Return for an S Corporation. Tax return 2012 For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Tax return 2012 For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Tax return 2012 S. Tax return 2012 Income Tax Return for an S Corporation. Tax return 2012 Subsequent Elections An LLC can elect to change its classification. Tax return 2012 Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Tax return 2012 An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Tax return 2012 For more information and exceptions, see Regulations section 301. Tax return 2012 7701-3(c) and the Form 8832 instructions. Tax return 2012 An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Tax return 2012 Partnership to corporation. Tax return 2012   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Tax return 2012   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Tax return 2012 Corporation to partnership. Tax return 2012   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Tax return 2012   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Tax return 2012 Corporation to disregarded entity. Tax return 2012   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Tax return 2012   For more information, see Distributions to Shareholders in Publication 542. Tax return 2012 Disregarded entity to corporation. Tax return 2012   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Tax return 2012   For more information, see Property Exchanged for Stock in Publication 542. Tax return 2012 How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Tax return 2012 Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Tax return 2012 By selecting the method that is best for you, you will have quick and easy access to tax help. Tax return 2012 Contacting your Taxpayer Advocate. Tax return 2012   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Tax return 2012   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Tax return 2012 You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Tax return 2012 You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Tax return 2012 For more information, go to www. Tax return 2012 irs. Tax return 2012 gov/advocate. Tax return 2012 Low Income Taxpayer Clinics (LITCs). Tax return 2012   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Tax return 2012 The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Tax return 2012 Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Tax return 2012 It is available at www. Tax return 2012 irs. Tax return 2012 gov or at your local IRS office. Tax return 2012 Small business workshops. Tax return 2012   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Tax return 2012 Workshops are sponsored and presented by IRS partners who are federal tax specialists. Tax return 2012 Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Tax return 2012 Although most are free, some workshops have fees associated with them. Tax return 2012 Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Tax return 2012   For more information, visit www. Tax return 2012 irs. Tax return 2012 gov/businesses/small. Tax return 2012 Subscribe to e-news for small businesses. Tax return 2012   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Tax return 2012 Visit the website at www. Tax return 2012 irs. Tax return 2012 gov/businesses/small and click on “Subscribe to e-News. Tax return 2012 ” Free tax services. Tax return 2012   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Tax return 2012 It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Tax return 2012   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Tax return 2012 Internet. Tax return 2012 You can access the IRS website at www. Tax return 2012 irs. Tax return 2012 gov 24 hours a day, 7 days a week, to: E-file your return. Tax return 2012 Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Tax return 2012 Check the status of your refund. Tax return 2012 Go to www. Tax return 2012 irs. Tax return 2012 gov and click on Where's My Refund. Tax return 2012 Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Tax return 2012 If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Tax return 2012 Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Tax return 2012 Download forms, instructions, and publications. Tax return 2012 Order IRS products online. Tax return 2012 Research your tax questions online. Tax return 2012 Search publications online by topic or keyword. Tax return 2012 View Internal Revenue Bulletins (IRBs) published in the last few years. Tax return 2012 Figure your withholding allowances using the withholding calculator online at www. Tax return 2012 irs. Tax return 2012 gov/individuals. Tax return 2012 Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Tax return 2012 Sign up to receive local and national tax news by email. Tax return 2012 Get information on starting and operating a small business. Tax return 2012 Phone. Tax return 2012 Many services are available by phone. Tax return 2012 Ordering forms, instructions, and publications. Tax return 2012 Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Tax return 2012 You should receive your order within 10 days. Tax return 2012 Asking tax questions. Tax return 2012 Call the IRS with your tax questions at 1-800-829-1040. Tax return 2012 Solving problems. Tax return 2012 You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Tax return 2012 An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Tax return 2012 Call your local Taxpayer Assistance Center for an appointment. Tax return 2012 To find the number, go to www. Tax return 2012 irs. Tax return 2012 gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Tax return 2012 TTY/TDD equipment. Tax return 2012 If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Tax return 2012 TeleTax topics. Tax return 2012 Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Tax return 2012 Refund information. Tax return 2012 To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Tax return 2012 Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Tax return 2012 If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Tax return 2012 Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Tax return 2012 Refunds are sent out weekly on Fridays. Tax return 2012 If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Tax return 2012 Evaluating the quality of our telephone services. Tax return 2012 To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Tax return 2012 One method is for a second IRS representative to listen in on or record random telephone calls. Tax return 2012 Another is to ask some callers to complete a short survey at the end of the call. Tax return 2012 Walk-in. Tax return 2012 Many products and services are available on a walk-in basis. Tax return 2012 Products. Tax return 2012 You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Tax return 2012 Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Tax return 2012 Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Tax return 2012 Services. Tax return 2012 You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Tax return 2012 An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Tax return 2012 If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Tax return 2012 No appointment is necessary—just walk in. Tax return 2012 If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Tax return 2012 A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Tax return 2012 If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Tax return 2012 All other issues will be handled without an appointment. Tax return 2012 To find the number of your local office, go to www. Tax return 2012 irs. Tax return 2012 gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Tax return 2012 Mail. Tax return 2012 You can send your order for forms, instructions, and publications to the address below. Tax return 2012 You should receive a response within 10 days after your request is received. Tax return 2012 Internal Revenue Service1201 N. Tax return 2012 Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Tax return 2012 You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Tax return 2012 Prior-year forms, instructions, and publications. Tax return 2012 Tax Map: an electronic research tool and finding aid. Tax return 2012 Tax law frequently asked questions. Tax return 2012 Tax Topics from the IRS telephone response system. Tax return 2012 Internal Revenue Code—Title 26 of the U. Tax return 2012 S. Tax return 2012 Code. Tax return 2012 Fill-in, print, and save features for most tax forms. Tax return 2012 Internal Revenue Bulletins. Tax return 2012 Toll-free and email technical support. Tax return 2012 Two releases during the year. Tax return 2012 – The first release will ship the beginning of January. Tax return 2012 – The final release will ship the beginning of March. Tax return 2012 Purchase the DVD from National Technical Information Service (NTIS) at www. Tax return 2012 irs. Tax return 2012 gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Tax return 2012 Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Tax return 2012 The SBA also has publications and videos on a variety of business topics. Tax return 2012 The following briefly describes assistance provided by the SBA. Tax return 2012 Small Business Development Centers (SBDCs). Tax return 2012   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Tax return 2012 Help is available when beginning, improving, or expanding a small business. Tax return 2012 Business Information Centers (BICs). Tax return 2012   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Tax return 2012 BICs also offer one-on-one assistance. Tax return 2012 Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Tax return 2012 Service Corps of Retired Executives (SCORE). Tax return 2012   SCORE provides small business counseling and training to current and prospective small business owners. Tax return 2012 SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Tax return 2012 SCORE also offers a variety of small business workshops. Tax return 2012    Internet. Tax return 2012 You can visit the SBA website at www. Tax return 2012 sba. Tax return 2012 gov. Tax return 2012 While visiting the SBA website, you can find a variety of information of interest to small business owners. Tax return 2012    Phone. Tax return 2012 Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Tax return 2012    Walk-in. Tax return 2012 You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Tax return 2012 To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Tax return 2012 Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Tax return 2012 Most of these are available from the Superintendent of Documents at the Government Printing Office. Tax return 2012 You can get information and order these publications and pamphlets in several ways. Tax return 2012 Internet. Tax return 2012 You can visit the GPO website at www. Tax return 2012 access. Tax return 2012 gpo. Tax return 2012 gov. Tax return 2012 Mail. Tax return 2012 Write to the GPO at the following address. Tax return 2012 Superintendent of DocumentsU. Tax return 2012 S. Tax return 2012 Government Printing OfficeP. Tax return 2012 O. Tax return 2012 Box 979050St. Tax return 2012 Louis, MO 63917-9000 Phone. Tax return 2012 Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. Tax return 2012 Prev  Up  Next   Home   More Online Publications
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The Tax Return 2012

Tax return 2012 12. Tax return 2012   Business Deduction for Work-Related Education Table of Contents What's New Introduction Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Tax return 2012 Transportation Expenses Travel Expenses No Double Benefit Allowed How To Treat ReimbursementsAccountable Plans Nonaccountable Plans Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping Illustrated Example What's New Standard mileage rate. Tax return 2012  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013, is 56. Tax return 2012 5 cents per mile. Tax return 2012 For more information, see Transportation Expenses under What Expenses Can Be Deducted, later. Tax return 2012 Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. Tax return 2012 To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, File Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education , later. Tax return 2012 What is the tax benefit of taking a business deduction for work-related education. Tax return 2012   If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Tax return 2012 Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. Tax return 2012 An itemized deduction reduces the amount of your income subject to tax. Tax return 2012   If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. Tax return 2012 This reduces the amount of your income subject to both income tax and self-employment tax. Tax return 2012   Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits. Tax return 2012 You may qualify for these other benefits even if you do not meet the requirements listed above. Tax return 2012   Also, your work-related education expenses may qualify you to claim more than one tax benefit. Tax return 2012 Generally, you may claim any number of benefits as long as you use different expenses to figure each one. Tax return 2012 Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. Tax return 2012 This is education that meets at least one of the following two tests. Tax return 2012 The education is required by your employer or the law to keep your present salary, status, or job. Tax return 2012 The required education must serve a bona fide business purpose of your employer. Tax return 2012 The education maintains or improves skills needed in your present work. Tax return 2012 However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. Tax return 2012 You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. Tax return 2012 Use Figure 12-1, Does Your Work-Related Education Qualify as a quick check to see if your education qualifies. Tax return 2012 Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. Tax return 2012 This additional education is qualifying work-related education if all three of the following requirements are met. Tax return 2012 It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. Tax return 2012 When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. Tax return 2012 See Education To Maintain or Improve Skills , later. Tax return 2012 Example. Tax return 2012 You are a teacher who has satisfied the minimum requirements for teaching. Tax return 2012 Your employer requires you to take an additional college course each year to keep your teaching job. Tax return 2012 If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. Tax return 2012 This image is too large to be displayed in the current screen. Tax return 2012 Please click the link to view the image. Tax return 2012 Figure 12-1 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. Tax return 2012 This could include refresher courses, courses on current developments, and academic or vocational courses. Tax return 2012 Example. Tax return 2012 You repair televisions, radios, and stereo systems for XYZ Store. Tax return 2012 To keep up with the latest changes, you take special courses in radio and stereo service. Tax return 2012 These courses maintain and improve skills required in your work. Tax return 2012 Maintaining skills vs. Tax return 2012 qualifying for new job. Tax return 2012   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. Tax return 2012 Education during temporary absence. Tax return 2012   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Tax return 2012 Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. Tax return 2012 Example. Tax return 2012 You quit your biology research job to become a full-time biology graduate student for 1 year. Tax return 2012 If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. Tax return 2012 Education during indefinite absence. Tax return 2012   If you stop work for more than a year, your absence from your job is considered indefinite. Tax return 2012 Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. Tax return 2012 Therefore, it is not qualifying work-related education. Tax return 2012 Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Tax return 2012 The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. Tax return 2012 Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. Tax return 2012 This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. Tax return 2012 You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. Tax return 2012 Example 1. Tax return 2012 You are a full-time engineering student. Tax return 2012 Although you have not received your degree or certification, you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. Tax return 2012 Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. Tax return 2012 The education is not qualifying work-related education. Tax return 2012 Example 2. Tax return 2012 You are an accountant and you have met the minimum educational requirements of your employer. Tax return 2012 Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. Tax return 2012 These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. Tax return 2012 Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. Tax return 2012 The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. Tax return 2012 If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. Tax return 2012 The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. Tax return 2012 You generally will be considered a faculty member when one or more of the following occurs. Tax return 2012 You have tenure. Tax return 2012 Your years of service count toward obtaining tenure. Tax return 2012 You have a vote in faculty decisions. Tax return 2012 Your school makes contributions for you to a retirement plan other than social security or a similar program. Tax return 2012 Example 1. Tax return 2012 The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. Tax return 2012 In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. Tax return 2012 If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. Tax return 2012 However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. Tax return 2012 Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. Tax return 2012 If you have all the required education except the fifth year, you have met the minimum educational requirements. Tax return 2012 The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. Tax return 2012 Example 2. Tax return 2012 Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. Tax return 2012 The additional four education courses can be qualifying work-related education. Tax return 2012 Although you do not have all the required courses, you have already met the minimum educational requirements. Tax return 2012 Example 3. Tax return 2012 Assume the same facts as in Example 1 except that you are hired with only 3 years of college. Tax return 2012 The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. Tax return 2012 They are needed to meet the minimum educational requirements for employment as a teacher. Tax return 2012 Example 4. Tax return 2012 You have a bachelor's degree and you work as a temporary instructor at a university. Tax return 2012 At the same time, you take graduate courses toward an advanced degree. Tax return 2012 The rules of the university state that you can become a faculty member only if you get a graduate degree. Tax return 2012 Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. Tax return 2012 You have not met the minimum educational requirements to qualify you as a faculty member. Tax return 2012 The graduate courses are not qualifying work-related education. Tax return 2012 Certification in a new state. Tax return 2012   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. Tax return 2012 This is true even if you must get additional education to be certified in another state. Tax return 2012 Any additional education you need is qualifying work-related education. Tax return 2012 You have already met the minimum requirements for teaching. Tax return 2012 Teaching in another state is not a new trade or business. Tax return 2012 Example. Tax return 2012 You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. Tax return 2012 You move to State B and are promptly hired as a teacher. Tax return 2012 You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. Tax return 2012 These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. Tax return 2012 Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. Tax return 2012 This is true even if you do not plan to enter that trade or business. Tax return 2012 If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. Tax return 2012 Example 1. Tax return 2012 You are an accountant. Tax return 2012 Your employer requires you to get a law degree at your own expense. Tax return 2012 You register at a law school for the regular curriculum that leads to a law degree. Tax return 2012 Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. Tax return 2012 Example 2. Tax return 2012 You are a general practitioner of medicine. Tax return 2012 You take a 2-week course to review developments in several specialized fields of medicine. Tax return 2012 The course does not qualify you for a new profession. Tax return 2012 It is qualifying work- related education because it maintains or improves skills required in your present profession. Tax return 2012 Example 3. Tax return 2012 While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. Tax return 2012 The program will lead to qualifying you to practice psychoanalysis. Tax return 2012 The psychoanalytic training does not qualify you for a new profession. Tax return 2012 It is qualifying work-related education because it maintains or improves skills required in your present profession. Tax return 2012 Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. Tax return 2012 They are part of a program of study that can qualify you for a new profession. Tax return 2012 Teaching and Related Duties All teaching and related duties are considered the same general kind of work. Tax return 2012 A change in duties in any of the following ways is not considered a change to a new business. Tax return 2012 Elementary school teacher to secondary school teacher. Tax return 2012 Teacher of one subject, such as biology, to teacher of another subject, such as art. Tax return 2012 Classroom teacher to guidance counselor. Tax return 2012 Classroom teacher to school administrator. Tax return 2012 What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education you can generally deduct your education expenses as business expenses. Tax return 2012 If you are not self-employed, you can deduct business expenses only if you itemize your deductions. Tax return 2012 You cannot deduct expenses related to tax-exempt and excluded income. Tax return 2012 Deductible expenses. Tax return 2012   The following education expenses can be deducted. Tax return 2012 Tuition, books, supplies, lab fees, and similar items. Tax return 2012 Certain transportation and travel costs. Tax return 2012 Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. Tax return 2012 Nondeductible expenses. Tax return 2012   You cannot deduct personal or capital expenses. Tax return 2012 For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. Tax return 2012 This amount is a personal expense. Tax return 2012 Unclaimed reimbursement. Tax return 2012   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. Tax return 2012 Example. Tax return 2012 Your employer agrees to pay your education expenses if you file a voucher showing your expenses. Tax return 2012 You do not file a voucher and you do not get reimbursed. Tax return 2012 Because you did not file a voucher, you cannot deduct the expenses on your tax return. Tax return 2012 Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. Tax return 2012 If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. Tax return 2012 Temporary basis. Tax return 2012   You go to school on a temporary basis if either of the following situations applies to you. Tax return 2012 Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. Tax return 2012 Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Tax return 2012 Your attendance is temporary up to the date you determine it will last more than 1 year. Tax return 2012 If you are in either situation (1) or (2) above, your attendance is not temporary if facts and circumstances indicate otherwise. Tax return 2012 Attendance not on a temporary basis. Tax return 2012   You do not go to school on a temporary basis if either of the following situations apply to you. Tax return 2012 Your attendance at school is realistically expected to last more than 1 year. Tax return 2012 It does not matter how long you actually attend. Tax return 2012 Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Tax return 2012 Your attendance is not temporary after the date you determine it will last more than 1 year. Tax return 2012 Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. Tax return 2012 This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. Tax return 2012 Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Tax return 2012 Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. Tax return 2012 Example 1. Tax return 2012 You regularly work in a nearby town, and go directly from work to home. Tax return 2012 You also attend school every work night for 3 months to take a course that improves your job skills. Tax return 2012 Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. Tax return 2012 This is true regardless of the distance traveled. Tax return 2012 Example 2. Tax return 2012 Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. Tax return 2012 You can deduct your transportation expenses from your regular work site to school and then home. Tax return 2012 Example 3. Tax return 2012 Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Tax return 2012 Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. Tax return 2012 Example 4. Tax return 2012 Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Tax return 2012 Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. Tax return 2012 If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. Tax return 2012 If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. Tax return 2012 Using your car. Tax return 2012    If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. Tax return 2012 The standard mileage rate for miles driven from January 1, 2013 through December 31, 2013, is 56. Tax return 2012 5 cents per mile. Tax return 2012 Whichever method you use, you can also deduct parking fees and tolls. Tax return 2012 See Publication 463, chapter 4, for information on deducting your actual expenses of using a car. Tax return 2012 Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. Tax return 2012 Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. Tax return 2012 For more information, see chapter 1 of Publication 463. Tax return 2012 You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining. Tax return 2012 Mainly personal travel. Tax return 2012   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. Tax return 2012 You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. Tax return 2012   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. Tax return 2012 An important factor is the comparison of time spent on personal activities with time spent on educational activities. Tax return 2012 If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. Tax return 2012 Example 1. Tax return 2012 John works in Newark, New Jersey. Tax return 2012 He traveled to Chicago to take a deductible 1-week course at the request of his employer. Tax return 2012 His main reason for going to Chicago was to take the course. Tax return 2012 While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day. Tax return 2012 Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. Tax return 2012 He cannot deduct his transportation expenses of going to Pleasantville. Tax return 2012 He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. Tax return 2012 Example 2. Tax return 2012 Sue works in Boston. Tax return 2012 She went to a university in Michigan to take a course for work. Tax return 2012 The course is qualifying work-related education. Tax return 2012 She took one course, which is one-fourth of a full course load of study. Tax return 2012 She spent the rest of the time on personal activities. Tax return 2012 Her reasons for taking the course in Michigan were all personal. Tax return 2012 Sue's trip is mainly personal because three-fourths of her time is considered personal time. Tax return 2012 She cannot deduct the cost of her round-trip train ticket to Michigan. Tax return 2012 She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. Tax return 2012 Example 3. Tax return 2012 Dave works in Nashville and recently traveled to California to take a 2-week seminar. Tax return 2012 The seminar is qualifying work-related education. Tax return 2012 While there, he spent an extra 8 weeks on personal activities. Tax return 2012 The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. Tax return 2012 Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. Tax return 2012 He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. Tax return 2012 Cruises and conventions. Tax return 2012   Certain cruises and conventions offer seminars or courses as part of their itinerary. Tax return 2012 Even if the seminars or courses are work related, your deduction for travel may be limited. Tax return 2012 This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. Tax return 2012   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. Tax return 2012 50% limit on meals. Tax return 2012   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. Tax return 2012 If you were reimbursed for the meals, see How To Treat Reimbursements , later. Tax return 2012   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. Tax return 2012 Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. Tax return 2012 Example. Tax return 2012 You are a French language teacher. Tax return 2012 While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. Tax return 2012 You chose your itinerary and most of your activities to improve your French language skills. Tax return 2012 You cannot deduct your travel expenses as education expenses. Tax return 2012 This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. Tax return 2012 No Double Benefit Allowed You cannot do either of the following. Tax return 2012 Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as a tuition and fees deduction. Tax return 2012 Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. Tax return 2012 See Adjustments to Qualifying Work-Related Education Expenses, next. Tax return 2012 Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. Tax return 2012 You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. Tax return 2012 Tax-free educational assistance. Tax return 2012   This includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Tax return 2012 Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Tax return 2012 Amounts that do not reduce qualifying work-related education expenses. Tax return 2012   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Tax return 2012 Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. Tax return 2012 How To Treat Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. Tax return 2012 There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. Tax return 2012 You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. Tax return 2012 Note. Tax return 2012 The following rules about reimbursement arrangements also apply to expense allowances received from your employer. Tax return 2012 Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. Tax return 2012 Your expenses must have a business connection. Tax return 2012 This means your expenses must be deductible under the rules for qualifying work-related education explained earlier. Tax return 2012 You must adequately account to your employer for your expenses within a reasonable period of time. Tax return 2012 You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time. Tax return 2012 If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2. Tax return 2012 If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2. Tax return 2012 Accountable plan rules not met. Tax return 2012   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. Tax return 2012 Those expenses that fail to meet the three rules are treated as having been reimbursed under a Nonaccountable Plan (discussed later). Tax return 2012 Expenses equal reimbursement. Tax return 2012   Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. Tax return 2012 Because your expenses and reimbursements are equal, you do not have a deduction. Tax return 2012 Excess expenses. Tax return 2012   If your expenses are more than your reimbursement, you can deduct your excess expenses. Tax return 2012 This is discussed later, under Deducting Business Expenses . Tax return 2012 Allocating your reimbursements for meals. Tax return 2012   Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. Tax return 2012 If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. Tax return 2012 Make the allocation as follows. Tax return 2012 Divide your meal expenses by your total expenses. Tax return 2012 Multiply your total reimbursement by the result from (1). Tax return 2012 This is the allocated reimbursement for your meal expenses. Tax return 2012 Subtract the amount figured in (2) from your total reimbursement. Tax return 2012 The difference is the allocated reimbursement for your other expenses of qualifying work-related education. Tax return 2012 Example. Tax return 2012 Your employer paid you an expense allowance of $2,000 under an accountable plan. Tax return 2012 The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. Tax return 2012 There was no indication of how much of the reimbursement was for each type of expense. Tax return 2012 Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition). Tax return 2012 Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. Tax return 2012   1. Tax return 2012 $425 meal expenses  $2,500 total expenses = . Tax return 2012 17   2. Tax return 2012 $2,000 (reimbursement)×. Tax return 2012 17     =$340 (allocated reimbursement for meal expenses)   3. Tax return 2012 $2,000 (reimbursement)−$340 (meals)     = $1,660 (allocated reimbursement for other qualifying work-related education expenses) Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). Tax return 2012 After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415). Tax return 2012 Nonaccountable Plans Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2. Tax return 2012 You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. Tax return 2012 This is discussed later under Deducting Business Expenses . Tax return 2012 An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter. Tax return 2012 Reimbursements for nondeductible expenses. Tax return 2012   Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. Tax return 2012 You must include them in your income. Tax return 2012 For example, you must include in your income reimbursements your employer gave you for expenses of education that: You need to meet the minimum educational requirements for your job, or Is part of a program of study that can qualify you for a new trade or business. Tax return 2012   For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463. Tax return 2012 Deducting Business Expenses Self-employed persons and employees report their business expenses differently. Tax return 2012 The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. Tax return 2012 Self-Employed Persons If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). Tax return 2012 If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. Tax return 2012 See the instructions for the form you file for information on how to complete it. Tax return 2012 Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. Tax return 2012 If either (1) or (2) applies, you can deduct the total qualifying cost. Tax return 2012 If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. Tax return 2012 In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Tax return 2012 (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Tax return 2012 ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Tax return 2012 Form 2106 or 2106-EZ. Tax return 2012   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or 2106-EZ. Tax return 2012 Form not required. Tax return 2012   Do not complete either Form 2106 or 2106-EZ if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are not claiming travel, transportation, meal, or entertainment expenses. Tax return 2012   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Tax return 2012 (Special rules for expenses of certain Performing Artists and Fee-Basis Officials and for Impairment-Related Work Expenses are explained later. Tax return 2012 ) Using Form 2106-EZ. Tax return 2012   This form is shorter and easier to use than Form 2106. Tax return 2012 Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. Tax return 2012   If you do not meet both of these requirements, use Form 2106. Tax return 2012 Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. Tax return 2012 Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24, or Form 1040NR, line 35. Tax return 2012 You do not have to itemize your deductions on Schedule A (Form 1040 or 1040NR), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. Tax return 2012 You must complete Form 2106 or 2106-EZ to figure your deduction even if you meet the requirements described earlier under Form not required . Tax return 2012 For more information on qualified performing artists, see chapter 6 of Publication 463. Tax return 2012 Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. Tax return 2012 They are not subject to the 2%-of-adjusted-gross-income limit. Tax return 2012 To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . Tax return 2012 For more information on impairment-related work expenses, see chapter 6 of Publication 463. Tax return 2012 Recordkeeping You must keep records as proof of any deduction claimed on your tax return. Tax return 2012 Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. Tax return 2012 If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. Tax return 2012 However, you should keep your records for a 3-year period if: You claim deductions for expenses that are more than your reimbursement, Your employer does not use adequate accounting procedures to verify expense accounts, You are related to your employer, or Your expenses are reimbursed under a nonaccountable plan. Tax return 2012 Examples of records to keep. Tax return 2012   If any of the above cases apply to you, you must be able to prove that your expenses are deductible. Tax return 2012 You should keep adequate records or have sufficient evidence that will support your expenses. Tax return 2012 Estimates or approximations do not qualify as proof of an expense. Tax return 2012 Some examples of what can be used to help prove your expenses are: Documents, such as transcripts, course descriptions, catalogs, etc. Tax return 2012 , showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity. Tax return 2012 Canceled checks and receipts to verify amounts you spent for: Tuition and books, Meals and lodging while away from home overnight for educational purposes, Travel and transportation, and Other education expenses. Tax return 2012 Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the type of certificate and subjects taught. Tax return 2012 Complete information about any scholarship or fellowship grants, including amounts you received during the year. Tax return 2012 Illustrated Example Victor Jones teaches math at a private high school in North Carolina. Tax return 2012 He was selected to attend a 3-week math seminar at a university in California. Tax return 2012 The seminar will improve his skills in his current job and is qualifying work-related education. Tax return 2012 He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown in box 1 of his Form W-2. Tax return 2012 Victor will file Form 1040. Tax return 2012 His actual expenses for the seminar are as follows:   Lodging   $1,050     Meals   526     Airfare   550     Taxi fares   50     Tuition and books   400     Total Expenses   $2,576   Victor files Form 2106-EZ with his tax return. Tax return 2012 He shows his expenses for the seminar in Part I of the form. Tax return 2012 He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. Tax return 2012 He enters $400 on line 4 for his tuition and books. Tax return 2012 On the line provided for total meals and entertainment expenses, Victor enters $526 for meal expenses. Tax return 2012 He multiplies that amount by 50% and enters the result, $263, on line 5. Tax return 2012 On line 6, Victor totals the amounts from lines 3 through 5. Tax return 2012 He carries the total, $2,313, to Schedule A (Form 1040), line 21. Tax return 2012 Since he does not claim any vehicle expenses, Victor leaves Part II blank. Tax return 2012 His filled-in form is shown on the next page. Tax return 2012 This image is too large to be displayed in the current screen. Tax return 2012 Please click the link to view the image. Tax return 2012 Form 2106-EZ for V. Tax return 2012 Jones Prev  Up  Next   Home   More Online Publications