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Amend 2013 Tax Return

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Amend 2013 Tax Return

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Deducting Business Expenses

Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.

What Can I Deduct?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to separate business expenses from the following expenses:

  • The expenses used to figure the cost of goods sold,
  • Capital Expenses, and
  • Personal Expenses.

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. Some of your expenses may be included in figuring the cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.

The following are types of expenses that go into figuring the cost of goods sold.

  • The cost of products or raw materials, including freight
  • Storage
  • Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products
  • Factory overhead

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs.

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.

For additional information, refer to the chapter on Cost of Goods Sold, Publication 334, Tax Guide for Small Businesses and the chapter on Inventories, Publication 538, Accounting Periods and Methods.

Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. There are, in general, three types of costs you capitalize.

  • Business start-up cost (See the note below)
  • Business assets
  • Improvements

Note: You can elect to deduct or amortize certain business start-up costs. Refer to chapters 7 and 8 of Publication 535, Business Expenses.

Personal versus Business Expenses

Generally, you cannot deduct personal, living, or family expenses. 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. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible. Refer to chapter 4 of Publication 535, Business Expenses, for information on deducting interest and the allocation rules.

Business Use of Your Home

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to Home Office Deduction and Publication 587, Business Use of Your Home, for more information.

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates.

Other Types of Business Expenses

  • Employees' Pay - You can generally deduct the pay you give your employees for the services they perform for your business.
  • Retirement Plans - Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees' retirement.
  • Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
  • Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
  • Taxes - You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
  • Insurance - Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.

This list is not all inclusive of the types of business expenses that you can deduct. For additional information, refer to Publication 535, Business Expenses.

Page Last Reviewed or Updated: 04-Feb-2014

The Amend 2013 Tax Return

Amend 2013 tax return 3. Amend 2013 tax return   Adjustments to Income Table of Contents Individual Retirement Arrangement (IRA) Contributions and DeductionsContributions to Kay Bailey Hutchison Spousal IRAs. Amend 2013 tax return Deductible contribution. Amend 2013 tax return Nondeductible contribution. Amend 2013 tax return You may be able to subtract amounts from your total income (Form 1040, line 22 or Form 1040A, line 15) or total effectively connected income (Form 1040NR, line 23) to get your adjusted gross income (Form 1040, line 37; Form 1040A, line 21; or Form 1040NR, line 36). Amend 2013 tax return Some adjustments to income follow. Amend 2013 tax return Contributions to your individual retirement arrangement (IRA) (Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32), explained later in this publication. Amend 2013 tax return Certain moving expenses (Form 1040, line 26; or Form 1040NR, line 26) if you changed job locations or started a new job in 2013. Amend 2013 tax return See Publication 521, Moving Expenses, or see Form 3903, Moving Expenses, and its instructions. Amend 2013 tax return Some health insurance costs (Form 1040, line 29 or Form 1040NR, line 29) if you were self-employed and had a net profit for the year, or if you received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Amend 2013 tax return For more details, see Publication 535, Business Expenses. Amend 2013 tax return Payments to your self-employed SEP, SIMPLE, or qualified plan (Form 1040, line 28 or Form 1040NR, line 28). Amend 2013 tax return For more information, including limits on how much you can deduct, see Publication 560, Retirement Plans for Small Business. Amend 2013 tax return Penalties paid on early withdrawal of savings (Form 1040, line 30 or Form 1040NR, line 30). Amend 2013 tax return Form 1099-INT, Interest Income, or Form 1099-OID, Original Issue Discount, will show the amount of any penalty you were charged. Amend 2013 tax return Alimony payments (Form 1040, line 31a). Amend 2013 tax return For more information, see Publication 504, Divorced or Separated Individuals. Amend 2013 tax return There are other items you can claim as adjustments to income. Amend 2013 tax return These adjustments are discussed in your tax return instructions. Amend 2013 tax return Individual Retirement Arrangement (IRA) Contributions and Deductions This section explains the tax treatment of amounts you pay into traditional IRAs. Amend 2013 tax return A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Amend 2013 tax return Roth and SIMPLE IRAs are defined earlier in the IRA discussion under Retirement Plan Distributions . Amend 2013 tax return For more detailed information, see Publication 590. Amend 2013 tax return Contributions. Amend 2013 tax return   An IRA is a personal savings plan that offers you tax advantages to set aside money for your retirement. Amend 2013 tax return Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until distributed. Amend 2013 tax return    Although interest earned from your traditional IRA generally is not taxed in the year earned, it is not tax-exempt interest. Amend 2013 tax return Do not report this interest on your tax return as tax-exempt interest. Amend 2013 tax return General limit. Amend 2013 tax return   The most that can be contributed for 2013 to your traditional IRA is the smaller of the following amounts. Amend 2013 tax return Your taxable compensation for the year, or $5,500 ($6,500 if you were age 50 or older by the end of 2013). Amend 2013 tax return Contributions to Kay Bailey Hutchison Spousal IRAs. Amend 2013 tax return   In the case of a married couple filing a joint return for 2013, up to $5,500 ($6,500 for each spouse age 50 or older by the end of 2013) can be contributed to IRAs on behalf of each spouse, even if one spouse has little or no compensation. Amend 2013 tax return For more information on the general limit and the Kay Bailey Hutchison Spousal IRA limit, see How Much Can Be Contributed? in Publication 590. Amend 2013 tax return Deductible contribution. Amend 2013 tax return   Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or Kay Bailey Hutchison Spousal IRA limit, if applicable) just explained. Amend 2013 tax return However, if you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Amend 2013 tax return Your deduction may be reduced or eliminated, depending on your filing status and the amount of your income. Amend 2013 tax return For more information, see Limit if Covered by Employer Plan in Publication 590. Amend 2013 tax return Nondeductible contribution. Amend 2013 tax return   The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Amend 2013 tax return You must file Form 8606, Nondeductible IRAs, to report nondeductible contributions even if you do not have to file a tax return for the year. Amend 2013 tax return    For 2014, the most that can be contributed to your traditional IRA is $5,500 ($6,500 if you are age 50 or older at the end of 2014). Amend 2013 tax return Prev  Up  Next   Home   More Online Publications