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Amend 2011 Tax Return Online

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Amend 2011 Tax Return Online

Amend 2011 tax return online Publication 1212 - Introductory Material Table of Contents Future Developments Photographs of Missing Children IntroductionOrdering forms and publications. Amend 2011 tax return online Tax questions. Amend 2011 tax return online Useful Items - You may want to see: Future Developments For the latest information about developments related to Pub. Amend 2011 tax return online 1212, such as legislation enacted after it was published, go to www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/pub1212. Amend 2011 tax return online Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Amend 2011 tax return online Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Amend 2011 tax return online You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Amend 2011 tax return online Introduction This publication has two purposes. Amend 2011 tax return online Its primary purpose is to help brokers and other middlemen identify publicly offered original issue discount (OID) debt instruments they may hold as nominees for the true owners, so they can file Forms 1099-OID or Forms 1099-INT as required. Amend 2011 tax return online The other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns. Amend 2011 tax return online The list of publicly offered OID debt instruments (OID list) is on the IRS website. Amend 2011 tax return online The original issue discount tables, Sections I-A through III-F, are only available on the IRS website at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/pub1212 by clicking the link under Recent Developments. Amend 2011 tax return online The tables are posted to the website in late November or early December of each year. Amend 2011 tax return online The information on these lists come from the issuers of the debt instruments and from financial publications and is updated annually. Amend 2011 tax return online (However, see Debt Instruments Not on the OID List, later. Amend 2011 tax return online ) Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. Amend 2011 tax return online However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS. Amend 2011 tax return online The OID reported by owners of a debt instrument on their income tax returns. Amend 2011 tax return online The issuer's classification of an instrument as debt for federal income tax purposes. Amend 2011 tax return online Instructions for issuers of OID debt instruments. Amend 2011 tax return online   In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Amend 2011 tax return online See the form instructions for more information. Amend 2011 tax return online Issuers should report errors in and omissions from the list in writing at the following address:  IRS OID Publication Project SE:W:CAR:MP:T  1111 Constitution Ave. Amend 2011 tax return online NW, IR-6526 Washington, D. Amend 2011 tax return online C. Amend 2011 tax return online 20224 REMIC and CDO information reporting requirements. Amend 2011 tax return online   Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment conduits (REMIC) regular, and collateralized debt obligations (CDO) interests. Amend 2011 tax return online The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Amend 2011 tax return online   Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs. Amend 2011 tax return online Comments and suggestions. Amend 2011 tax return online   We welcome your comments about this publication and your suggestions for future editions. Amend 2011 tax return online   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Amend 2011 tax return online NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Amend 2011 tax return online Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Amend 2011 tax return online   You can send your comments from www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/formspubs/. Amend 2011 tax return online Click on “More Information” and then on “Comment on Tax Forms and Publications. Amend 2011 tax return online ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Amend 2011 tax return online Ordering forms and publications. Amend 2011 tax return online   Visit www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Amend 2011 tax return online Internal Revenue Service 1201 N. Amend 2011 tax return online Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Amend 2011 tax return online   If you have a tax question, check the information available on IRS. Amend 2011 tax return online gov or call 1-800-829-1040. Amend 2011 tax return online We cannot answer tax questions sent to any of the preceding addresses. Amend 2011 tax return online Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 550 Investment Income and Expenses 938 Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Amend 2011 tax return online Form (and Instructions) 1096 Annual Summary and Transmittal of U. Amend 2011 tax return online S. Amend 2011 tax return online Information Returns 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-INT Interest Income 1099-OID Original Issue Discount 8949 Sales and Other Dispositions of Capital Assets Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses W-8 Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY See How To Get Tax Help near the end of this publication for information about getting publications and forms. Amend 2011 tax return online Prev  Up  Next   Home   More Online Publications
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Amend 2011 tax return online 1. Amend 2011 tax return online   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Amend 2011 tax return online At-risk limits. Amend 2011 tax return online Passive activities. Amend 2011 tax return online Net operating loss. Amend 2011 tax return online When Can I Deduct an Expense?Economic performance. Amend 2011 tax return online Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Amend 2011 tax return online  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Amend 2011 tax return online See Optional safe harbor method under Business use of your home , later. Amend 2011 tax return online Introduction This chapter covers the general rules for deducting business expenses. Amend 2011 tax return online Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Amend 2011 tax return online Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Amend 2011 tax return online What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Amend 2011 tax return online An ordinary expense is one that is common and accepted in your industry. Amend 2011 tax return online A necessary expense is one that is helpful and appropriate for your trade or business. Amend 2011 tax return online An expense does not have to be indispensable to be considered necessary. Amend 2011 tax return online Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Amend 2011 tax return online In some cases you may not be allowed to deduct the expense at all. Amend 2011 tax return online Therefore, it is important to distinguish usual business expenses from expenses that include the following. Amend 2011 tax return online The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Amend 2011 tax return online Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Amend 2011 tax return online Some of your business expenses may be included in figuring cost of goods sold. Amend 2011 tax return online Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Amend 2011 tax return online If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Amend 2011 tax return online The following are types of expenses that go into figuring cost of goods sold. Amend 2011 tax return online The cost of products or raw materials, including freight. Amend 2011 tax return online Storage. Amend 2011 tax return online Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Amend 2011 tax return online Factory overhead. Amend 2011 tax return online Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Amend 2011 tax return online Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Amend 2011 tax return online This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Amend 2011 tax return online For more information, see the following sources. Amend 2011 tax return online Cost of goods sold—chapter 6 of Publication 334. Amend 2011 tax return online Inventories—Publication 538. Amend 2011 tax return online Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Amend 2011 tax return online Capital Expenses You must capitalize, rather than deduct, some costs. Amend 2011 tax return online These costs are a part of your investment in your business and are called “capital expenses. Amend 2011 tax return online ” Capital expenses are considered assets in your business. Amend 2011 tax return online In general, you capitalize three types of costs. Amend 2011 tax return online Business start-up costs (See Tip below). Amend 2011 tax return online Business assets. Amend 2011 tax return online Improvements. Amend 2011 tax return online You can elect to deduct or amortize certain business start-up costs. Amend 2011 tax return online See chapters 7 and 8. Amend 2011 tax return online Cost recovery. Amend 2011 tax return online   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Amend 2011 tax return online These recovery methods allow you to deduct part of your cost each year. Amend 2011 tax return online In this way, you are able to recover your capital expense. Amend 2011 tax return online See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Amend 2011 tax return online A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Amend 2011 tax return online A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Amend 2011 tax return online See Publication 946 for details. Amend 2011 tax return online Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Amend 2011 tax return online These costs may include expenses for advertising, travel, or wages for training employees. Amend 2011 tax return online If you go into business. Amend 2011 tax return online   When you go into business, treat all costs you had to get your business started as capital expenses. Amend 2011 tax return online   Usually you recover costs for a particular asset through depreciation. Amend 2011 tax return online Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Amend 2011 tax return online However, you can choose to amortize certain costs for setting up your business. Amend 2011 tax return online See Starting a Business in chapter 8 for more information on business start-up costs. Amend 2011 tax return online If your attempt to go into business is unsuccessful. Amend 2011 tax return online   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Amend 2011 tax return online The costs you had before making a decision to acquire or begin a specific business. Amend 2011 tax return online These costs are personal and nondeductible. Amend 2011 tax return online They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Amend 2011 tax return online The costs you had in your attempt to acquire or begin a specific business. Amend 2011 tax return online These costs are capital expenses and you can deduct them as a capital loss. Amend 2011 tax return online   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Amend 2011 tax return online   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Amend 2011 tax return online You cannot take a deduction for these costs. Amend 2011 tax return online You will recover the costs of these assets when you dispose of them. Amend 2011 tax return online Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Amend 2011 tax return online You must fully capitalize the cost of these assets, including freight and installation charges. Amend 2011 tax return online Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Amend 2011 tax return online See Regulations section 1. Amend 2011 tax return online 263A-2 for information on these rules. Amend 2011 tax return online Improvements Improvements are generally major expenditures. Amend 2011 tax return online Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Amend 2011 tax return online The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Amend 2011 tax return online Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Amend 2011 tax return online Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Amend 2011 tax return online However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Amend 2011 tax return online Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Amend 2011 tax return online Restoration plan. Amend 2011 tax return online   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Amend 2011 tax return online This applies even if some of the work would by itself be classified as repairs. Amend 2011 tax return online Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Amend 2011 tax return online Motor vehicles. Amend 2011 tax return online   You usually capitalize the cost of a motor vehicle you use in your business. Amend 2011 tax return online You can recover its cost through annual deductions for depreciation. Amend 2011 tax return online   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Amend 2011 tax return online See Publication 463. Amend 2011 tax return online   Generally, repairs you make to your business vehicle are currently deductible. Amend 2011 tax return online However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Amend 2011 tax return online Roads and driveways. Amend 2011 tax return online    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Amend 2011 tax return online The cost of maintaining a private road on your business property is a deductible expense. Amend 2011 tax return online Tools. Amend 2011 tax return online   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Amend 2011 tax return online Machinery parts. Amend 2011 tax return online   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Amend 2011 tax return online Heating equipment. Amend 2011 tax return online   The cost of changing from one heating system to another is a capital expense. Amend 2011 tax return online Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Amend 2011 tax return online However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Amend 2011 tax return online You can deduct the business part. Amend 2011 tax return online For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Amend 2011 tax return online The remaining 30% is personal interest and generally is not deductible. Amend 2011 tax return online See chapter 4 for information on deducting interest and the allocation rules. Amend 2011 tax return online Business use of your home. Amend 2011 tax return online   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Amend 2011 tax return online These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Amend 2011 tax return online   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Amend 2011 tax return online The business part of your home must be used exclusively and regularly for your trade or business. Amend 2011 tax return online The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Amend 2011 tax return online   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Amend 2011 tax return online   Your home office qualifies as your principal place of business if you meet the following requirements. Amend 2011 tax return online You use the office exclusively and regularly for administrative or management activities of your trade or business. Amend 2011 tax return online You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amend 2011 tax return online   If you have more than one business location, determine your principal place of business based on the following factors. Amend 2011 tax return online The relative importance of the activities performed at each location. Amend 2011 tax return online If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Amend 2011 tax return online Optional safe harbor method. Amend 2011 tax return online   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Amend 2011 tax return online This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Amend 2011 tax return online   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Amend 2011 tax return online Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Amend 2011 tax return online You are not required to allocate these deductions between personal and business use, as is required under the regular method. Amend 2011 tax return online If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Amend 2011 tax return online   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Amend 2011 tax return online All of the requirements discussed earlier under Business use of your home still apply. Amend 2011 tax return online   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Amend 2011 tax return online    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Amend 2011 tax return online Business use of your car. Amend 2011 tax return online   If you use your car exclusively in your business, you can deduct car expenses. Amend 2011 tax return online If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Amend 2011 tax return online Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Amend 2011 tax return online   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Amend 2011 tax return online Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Amend 2011 tax return online Beginning in 2013, the standard mileage rate is 56. Amend 2011 tax return online 5 cents per mile. Amend 2011 tax return online   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Amend 2011 tax return online   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Amend 2011 tax return online How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Amend 2011 tax return online Recovery of amount deducted (tax benefit rule). Amend 2011 tax return online   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Amend 2011 tax return online If you have a recovery in a later year, include the recovered amount in income in that year. Amend 2011 tax return online However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Amend 2011 tax return online   For more information on recoveries and the tax benefit rule, see Publication 525. Amend 2011 tax return online Payments in kind. Amend 2011 tax return online   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Amend 2011 tax return online You cannot deduct the cost of your own labor. Amend 2011 tax return online   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Amend 2011 tax return online If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Amend 2011 tax return online Limits on losses. Amend 2011 tax return online   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Amend 2011 tax return online There may be limits on how much of the loss you can deduct. Amend 2011 tax return online Not-for-profit limits. Amend 2011 tax return online   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Amend 2011 tax return online See Not-for-Profit Activities , later. Amend 2011 tax return online At-risk limits. Amend 2011 tax return online   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Amend 2011 tax return online You are at risk in any activity for the following. Amend 2011 tax return online The money and adjusted basis of property you contribute to the activity. Amend 2011 tax return online Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Amend 2011 tax return online For more information, see Publication 925. Amend 2011 tax return online Passive activities. Amend 2011 tax return online   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Amend 2011 tax return online In general, deductions for losses from passive activities only offset income from passive activities. Amend 2011 tax return online You cannot use any excess deductions to offset other income. Amend 2011 tax return online In addition, passive activity credits can only offset the tax on net passive income. Amend 2011 tax return online Any excess loss or credits are carried over to later years. Amend 2011 tax return online Suspended passive losses are fully deductible in the year you completely dispose of the activity. Amend 2011 tax return online For more information, see Publication 925. Amend 2011 tax return online Net operating loss. Amend 2011 tax return online   If your deductions are more than your income for the year, you may have a “net operating loss. Amend 2011 tax return online ” You can use a net operating loss to lower your taxes in other years. Amend 2011 tax return online See Publication 536 for more information. Amend 2011 tax return online   See Publication 542 for information about net operating losses of corporations. Amend 2011 tax return online When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Amend 2011 tax return online An accounting method is a set of rules used to determine when and how income and expenses are reported. Amend 2011 tax return online The two basic methods are the cash method and the accrual method. Amend 2011 tax return online Whichever method you choose must clearly reflect income. Amend 2011 tax return online For more information on accounting methods, see Publication 538. Amend 2011 tax return online Cash method. Amend 2011 tax return online   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Amend 2011 tax return online Accrual method. Amend 2011 tax return online   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Amend 2011 tax return online The all-events test has been met. Amend 2011 tax return online The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Amend 2011 tax return online Economic performance has occurred. Amend 2011 tax return online Economic performance. Amend 2011 tax return online   You generally cannot deduct or capitalize a business expense until economic performance occurs. Amend 2011 tax return online If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Amend 2011 tax return online If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Amend 2011 tax return online Example. Amend 2011 tax return online Your tax year is the calendar year. Amend 2011 tax return online In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Amend 2011 tax return online You paid it by check in January 2014. Amend 2011 tax return online If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Amend 2011 tax return online If you use the cash method of accounting, deduct the expense on your 2014 return. Amend 2011 tax return online Prepayment. Amend 2011 tax return online   You generally cannot deduct expenses in advance, even if you pay them in advance. Amend 2011 tax return online This rule applies to both the cash and accrual methods. Amend 2011 tax return online It applies to prepaid interest, prepaid insurance premiums, and any other 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. Amend 2011 tax return online Example. Amend 2011 tax return online In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Amend 2011 tax return online Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Amend 2011 tax return online You can deduct the rent for 2014 and 2015 on your tax returns for those years. Amend 2011 tax return online Contested liability. Amend 2011 tax return online   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Amend 2011 tax return online Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Amend 2011 tax return online S. Amend 2011 tax return online possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Amend 2011 tax return online However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Amend 2011 tax return online See Regulations section 1. Amend 2011 tax return online 461-2. Amend 2011 tax return online Related person. Amend 2011 tax return online   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Amend 2011 tax return online However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Amend 2011 tax return online Your deduction is allowed when the amount is includible in income by the related cash method payee. Amend 2011 tax return online See Related Persons in Publication 538. Amend 2011 tax return online Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Amend 2011 tax return online Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Amend 2011 tax return online The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Amend 2011 tax return online It does not apply to corporations other than S corporations. Amend 2011 tax return online In determining whether you are carrying on an activity for profit, several factors are taken into account. Amend 2011 tax return online No one factor alone is decisive. Amend 2011 tax return online Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Amend 2011 tax return online Presumption of profit. Amend 2011 tax return online   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Amend 2011 tax return online Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Amend 2011 tax return online The activity must be substantially the same for each year within this period. Amend 2011 tax return online You have a profit when the gross income from an activity exceeds the deductions. Amend 2011 tax return online   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Amend 2011 tax return online   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Amend 2011 tax return online This means the limits discussed here will not apply. Amend 2011 tax return online You can take all your business deductions from the activity, even for the years that you have a loss. Amend 2011 tax return online You can rely on this presumption unless the IRS later shows it to be invalid. Amend 2011 tax return online Using the presumption later. Amend 2011 tax return online   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Amend 2011 tax return online   You can elect to do this by filing Form 5213. Amend 2011 tax return online Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Amend 2011 tax return online   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Amend 2011 tax return online Accordingly, it will not restrict your deductions. Amend 2011 tax return online Rather, you will gain time to earn a profit in the required number of years. Amend 2011 tax return online If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Amend 2011 tax return online If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Amend 2011 tax return online   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Amend 2011 tax return online The period is extended only for deductions of the activity and any related deductions that might be affected. Amend 2011 tax return online    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Amend 2011 tax return online Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Amend 2011 tax return online Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Amend 2011 tax return online You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Amend 2011 tax return online However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Amend 2011 tax return online Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Amend 2011 tax return online If you are an individual, these deductions may be taken only if you itemize. Amend 2011 tax return online These deductions may be taken on Schedule A (Form 1040). Amend 2011 tax return online Category 1. Amend 2011 tax return online   Deductions you can take for personal as well as for business activities are allowed in full. Amend 2011 tax return online For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Amend 2011 tax return online Deduct them on the appropriate lines of Schedule A (Form 1040). Amend 2011 tax return online For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Amend 2011 tax return online The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Amend 2011 tax return online The reduction amount returns to $100 for tax years beginning after December 31, 2009. Amend 2011 tax return online See Publication 547 for more information on casualty losses. Amend 2011 tax return online For the limits that apply to home mortgage interest, see Publication 936. Amend 2011 tax return online Category 2. Amend 2011 tax return online   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Amend 2011 tax return online Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Amend 2011 tax return online Category 3. Amend 2011 tax return online   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Amend 2011 tax return online Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Amend 2011 tax return online Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Amend 2011 tax return online    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Amend 2011 tax return online They are subject to the 2%-of-adjusted-gross-income limit. Amend 2011 tax return online See Publication 529 for information on this limit. Amend 2011 tax return online Example. Amend 2011 tax return online Adriana is engaged in a not-for-profit activity. Amend 2011 tax return online The income and expenses of the activity are as follows. Amend 2011 tax return online Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Amend 2011 tax return online The limit is reached in category (3), as follows. Amend 2011 tax return online Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Amend 2011 tax return online $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Amend 2011 tax return online Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Amend 2011 tax return online The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Amend 2011 tax return online Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Amend 2011 tax return online Partnerships and S corporations. Amend 2011 tax return online   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Amend 2011 tax return online They are reflected in the individual shareholder's or partner's distributive shares. Amend 2011 tax return online More than one activity. Amend 2011 tax return online   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Amend 2011 tax return online The following are the most significant facts and circumstances in making this determination. Amend 2011 tax return online The degree of organizational and economic interrelationship of various undertakings. Amend 2011 tax return online The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Amend 2011 tax return online The similarity of the undertakings. Amend 2011 tax return online   The IRS will generally accept your characterization if it is supported by facts and circumstances. Amend 2011 tax return online    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Amend 2011 tax return online Figure separately whether each is a not-for-profit activity. Amend 2011 tax return online Then figure the limit on deductions and losses separately for each activity that is not for profit. Amend 2011 tax return online Prev  Up  Next   Home   More Online Publications