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Free 1040ez Instructions

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Free 1040ez Instructions

Free 1040ez instructions 2. Free 1040ez instructions   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. Free 1040ez instructions 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. Free 1040ez instructions Deduction may depend on your type of business. Free 1040ez instructions Exception for events that benefit charitable organizations. Free 1040ez instructions Food and beverages in skybox seats. Free 1040ez instructions What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. Free 1040ez instructions You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Free 1040ez instructions The rules and definitions are summarized in Table 2-1 . Free 1040ez instructions You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. Free 1040ez instructions Directly-related test. Free 1040ez instructions Associated test. Free 1040ez instructions Both of these tests are explained later. Free 1040ez instructions An ordinary expense is one that is common and accepted in your trade or business. Free 1040ez instructions A necessary expense is one that is helpful and appropriate for your business. Free 1040ez instructions An expense does not have to be required to be considered necessary. Free 1040ez instructions The amount you can deduct for entertainment expenses may be limited. Free 1040ez instructions Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Free 1040ez instructions This limit is discussed later under 50% Limit. Free 1040ez instructions Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. Free 1040ez instructions Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Free 1040ez instructions Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. Free 1040ez instructions See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. Free 1040ez instructions You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. Free 1040ez instructions It is not necessary to devote more time to business than to entertainment. Free 1040ez instructions However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. Free 1040ez instructions Table 2-1. Free 1040ez instructions When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Free 1040ez instructions Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Free 1040ez instructions An ordinary expense is one that is common and accepted in your trade or business. Free 1040ez instructions A necessary expense is one that is helpful and appropriate. Free 1040ez instructions Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Free 1040ez instructions   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. Free 1040ez instructions Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Free 1040ez instructions You cannot deduct expenses that are lavish or extravagant under the circumstances. Free 1040ez instructions You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). Free 1040ez instructions You do not have to show that business income or other business benefit actually resulted from each entertainment expense. Free 1040ez instructions Clear business setting. Free 1040ez instructions   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. Free 1040ez instructions The following situations are examples of entertainment in a clear business setting. Free 1040ez instructions Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. Free 1040ez instructions Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). Free 1040ez instructions Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. Free 1040ez instructions An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. Free 1040ez instructions Expenses not considered directly related. Free 1040ez instructions   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. Free 1040ez instructions The following are examples of situations where there are substantial distractions. Free 1040ez instructions A meeting or discussion at a nightclub, theater, or sporting event. Free 1040ez instructions A meeting or discussion during what is essentially a social gathering, such as a cocktail party. Free 1040ez instructions A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. Free 1040ez instructions Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. Free 1040ez instructions To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). Free 1040ez instructions Associated with trade or business. Free 1040ez instructions   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. Free 1040ez instructions The purpose may be to get new business or to encourage the continuation of an existing business relationship. Free 1040ez instructions Substantial business discussion. Free 1040ez instructions   Whether a business discussion is substantial depends on the facts of each case. Free 1040ez instructions A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. Free 1040ez instructions   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. Free 1040ez instructions It is not necessary that you devote more time to business than to entertainment. Free 1040ez instructions You do not have to discuss business during the meal or entertainment. Free 1040ez instructions Meetings at conventions. Free 1040ez instructions   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. Free 1040ez instructions However, your reason for attending the convention or meeting must be to further your trade or business. Free 1040ez instructions The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. Free 1040ez instructions Directly before or after business discussion. Free 1040ez instructions   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. Free 1040ez instructions   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. Free 1040ez instructions Among the facts to consider are the place, date, and duration of the business discussion. Free 1040ez instructions If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. Free 1040ez instructions Example. Free 1040ez instructions A group of business associates comes from out of town to your place of business to hold a substantial business discussion. Free 1040ez instructions If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. Free 1040ez instructions The expense meets the associated test. Free 1040ez instructions 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Free 1040ez instructions (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Free 1040ez instructions See Individuals subject to “hours of service” limits , later. Free 1040ez instructions ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Free 1040ez instructions Figure A summarizes the general rules explained in this section. Free 1040ez instructions The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Free 1040ez instructions Included expenses. Free 1040ez instructions   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Free 1040ez instructions However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Free 1040ez instructions Figure A. Free 1040ez instructions Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Free 1040ez instructions See Exceptions to the 50% Limit . Free 1040ez instructions Please click here for the text description of the image. Free 1040ez instructions Figure A. Free 1040ez instructions Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. Free 1040ez instructions   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. Free 1040ez instructions   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Free 1040ez instructions It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. Free 1040ez instructions It also applies to the cost of meals included in deductible educational expenses. Free 1040ez instructions When to apply the 50% limit. Free 1040ez instructions   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Free 1040ez instructions You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. Free 1040ez instructions Example 1. Free 1040ez instructions You spend $200 for a business-related meal. Free 1040ez instructions If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Free 1040ez instructions Your deduction cannot be more than $45 (50% × $90). Free 1040ez instructions Example 2. Free 1040ez instructions You purchase two tickets to a concert and give them to a client. Free 1040ez instructions You purchased the tickets through a ticket agent. Free 1040ez instructions You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Free 1040ez instructions Your deduction cannot be more than $80 (50% × $160). Free 1040ez instructions Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Free 1040ez instructions Figure A can help you determine if the 50% limit applies to you. Free 1040ez instructions Expenses not subject to 50% limit. Free 1040ez instructions   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Free 1040ez instructions 1 - Employee's reimbursed expenses. Free 1040ez instructions   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Free 1040ez instructions Accountable plans are discussed in chapter 6. Free 1040ez instructions 2 - Self-employed. Free 1040ez instructions   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. Free 1040ez instructions You have these expenses as an independent contractor. Free 1040ez instructions Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. Free 1040ez instructions You provide adequate records of these expenses to your customer or client. Free 1040ez instructions (See chapter 5 . Free 1040ez instructions )   In this case, your client or customer is subject to the 50% limit on the expenses. Free 1040ez instructions Example. Free 1040ez instructions You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. Free 1040ez instructions You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. Free 1040ez instructions If the client can deduct the expenses, the client is subject to the 50% limit. Free 1040ez instructions If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. Free 1040ez instructions 3 - Advertising expenses. Free 1040ez instructions   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Free 1040ez instructions For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. Free 1040ez instructions 4 - Sale of meals or entertainment. Free 1040ez instructions   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. Free 1040ez instructions For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. Free 1040ez instructions 5 - Charitable sports event. Free 1040ez instructions   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. Free 1040ez instructions For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. Free 1040ez instructions Individuals subject to “hours of service” limits. Free 1040ez instructions   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Free 1040ez instructions The percentage is 80%. Free 1040ez instructions   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Free 1040ez instructions Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Free 1040ez instructions Interstate truck operators and bus drivers who are under Department of Transportation regulations. Free 1040ez instructions Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Free 1040ez instructions Certain merchant mariners who are under Coast Guard regulations. Free 1040ez instructions What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Free 1040ez instructions Entertainment. Free 1040ez instructions   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Free 1040ez instructions Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Free 1040ez instructions   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. Free 1040ez instructions A meal as a form of entertainment. Free 1040ez instructions   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Free 1040ez instructions A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Free 1040ez instructions To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Free 1040ez instructions    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Free 1040ez instructions    Meals sold in the normal course of your business are not considered entertainment. Free 1040ez instructions Deduction may depend on your type of business. Free 1040ez instructions   Your kind of business may determine if a particular activity is considered entertainment. Free 1040ez instructions For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. Free 1040ez instructions This is because fashion shows are typical in your business. Free 1040ez instructions But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. Free 1040ez instructions Separating costs. Free 1040ez instructions   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Free 1040ez instructions You must have a reasonable basis for making this allocation. Free 1040ez instructions For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Free 1040ez instructions Taking turns paying for meals or entertainment. Free 1040ez instructions   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Free 1040ez instructions Lavish or extravagant expenses. Free 1040ez instructions   You cannot deduct expenses for entertainment that are lavish or extravagant. Free 1040ez instructions An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Free 1040ez instructions Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Free 1040ez instructions Allocating between business and nonbusiness. Free 1040ez instructions   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. Free 1040ez instructions You can deduct only the business part. Free 1040ez instructions If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. Free 1040ez instructions Example. Free 1040ez instructions You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. Free 1040ez instructions Only 4/11 of the expense qualifies as a business entertainment expense. Free 1040ez instructions You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. Free 1040ez instructions Trade association meetings. Free 1040ez instructions   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Free 1040ez instructions These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Free 1040ez instructions Entertainment tickets. Free 1040ez instructions   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Free 1040ez instructions For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Free 1040ez instructions Exception for events that benefit charitable organizations. Free 1040ez instructions   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. Free 1040ez instructions You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. Free 1040ez instructions The event's main purpose is to benefit a qualified charitable organization. Free 1040ez instructions The entire net proceeds go to the charity. Free 1040ez instructions The event uses volunteers to perform substantially all the event's work. Free 1040ez instructions    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. Free 1040ez instructions Example 1. Free 1040ez instructions You purchase tickets to a golf tournament organized by the local volunteer fire company. Free 1040ez instructions All net proceeds will be used to buy new fire equipment. Free 1040ez instructions The volunteers will run the tournament. Free 1040ez instructions You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. Free 1040ez instructions Example 2. Free 1040ez instructions You purchase tickets to a college football game through a ticket broker. Free 1040ez instructions After having a business discussion, you take a client to the game. Free 1040ez instructions Net proceeds from the game go to colleges that qualify as charitable organizations. Free 1040ez instructions However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. Free 1040ez instructions Skyboxes and other private luxury boxes. Free 1040ez instructions   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. Free 1040ez instructions   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. Free 1040ez instructions For example, renting a skybox for a series of playoff games is considered renting it for more than one event. Free 1040ez instructions All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. Free 1040ez instructions   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. Free 1040ez instructions Example. Free 1040ez instructions You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. Free 1040ez instructions The cost of regular nonluxury box seats at each event is $30 a seat. Free 1040ez instructions You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). Free 1040ez instructions Food and beverages in skybox seats. Free 1040ez instructions   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. Free 1040ez instructions The amounts separately stated for food and beverages must be reasonable. Free 1040ez instructions You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. Free 1040ez instructions What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Free 1040ez instructions Club dues and membership fees. Free 1040ez instructions   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Free 1040ez instructions This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. Free 1040ez instructions   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Free 1040ez instructions You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Free 1040ez instructions Entertainment facilities. Free 1040ez instructions   Generally, you cannot deduct any expense for the use of an entertainment facility. Free 1040ez instructions This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Free 1040ez instructions   An entertainment facility is any property you own, rent, or use for entertainment. Free 1040ez instructions Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Free 1040ez instructions Out-of-pocket expenses. Free 1040ez instructions   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Free 1040ez instructions These are not expenses for the use of an entertainment facility. Free 1040ez instructions However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. Free 1040ez instructions Expenses for spouses. Free 1040ez instructions   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. Free 1040ez instructions However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. Free 1040ez instructions Example. Free 1040ez instructions You entertain a customer. Free 1040ez instructions The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. Free 1040ez instructions The customer's spouse joins you because it is impractical to entertain the customer without the spouse. Free 1040ez instructions You can deduct the cost of entertaining the customer's spouse. Free 1040ez instructions If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. Free 1040ez instructions Gift or entertainment. Free 1040ez instructions   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Free 1040ez instructions However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. Free 1040ez instructions   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Free 1040ez instructions You can treat the tickets as either a gift or entertainment, whichever is to your advantage. Free 1040ez instructions   You can change your treatment of the tickets at a later date by filing an amended return. Free 1040ez instructions Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Free 1040ez instructions   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Free 1040ez instructions You cannot choose, in this case, to treat the tickets as a gift. Free 1040ez instructions Prev  Up  Next   Home   More Online Publications
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Extra Time Granted for Tax-Exempt Bond Issuers Affected by Severe Storms and Tornados in Oklahoma

Government entity issuers of tax-exempt bonds affected by the severe storms and tornados occurring in parts of Oklahoma may qualify for additional time to file certain returns related to tax-exempt bonds, qualified tax credit bonds, and specified tax credit bonds.

Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, affected government entities in covered disaster areas in Oklahoma will receive filing and payment relief. 

Affected issuers who are required to file a Form 8038 series information return or a Form 8038-T in connection with an arbitrage payment, with a due date between May 18, 2013 and Sept. 29, 2013, may file such returns and make such payments on or before Sept. 30, 2013.

Affected issuers may also file such returns and make such payments on or before Sept. 30, 2013, if the records necessary to make such filing or payment, the conduit borrower, the bond counsel, or other professional upon whom the issuer relies to make such filing or payment are located in a covered disaster area.

The IRS will abate any late-filing penalty that would otherwise apply. The IRS automatically provides this relief to affected issuers located in covered disaster areas. Issuers need not contact the IRS to get this relief.  However, affected issuers should clearly indicate on the top of the return that such late filing or payment is the result of devastation caused by the severe storms and tornados in Oklahoma.

In addition, an affected issuer required to file a Form 8038 series information return or a Form 8038-T in connection with an arbitrage payment, due between May 18, 2013 and Sept. 29, 2013, may request authority to file a Form 8038 or Form 8038-T after Sept. 30, 2013, by requesting an extension under Revenue Procedures 2002-48 and 2005-40, which provide guidance on how issuers may request extensions of time to file Form 8038 series information returns and waivers of penalty associated with a late arbitrage payment.  Affected issuers should request relief in accordance with these revenue procedures and clearly indicate that such late filing or payment was the result of devastation caused by the severe storms and tornados in Oklahoma.

In addition, a Form 8038-CP authorized to be filed by an affected issuer between May 18, 2013 and Sept. 29, 2013, but filed thereafter, will be immediately processed upon receipt.

At this time, IRS relief for affected issuers applies to the following covered disaster areas in Oklahoma: Cleveland, Lincoln, McClain, Oklahoma and Pottawatomie counties.

Related Items:

IRS Gives Tax Relief to Oklahoma Tornado Victims; Return Filing and Tax Payment Deadlines Extended to Sept 30

Tax Relief for Victims of Severe Storms and Tornadoes in Oklahoma

Revenue Procedure 2007-56

Page Last Reviewed or Updated: 04-Sep-2013

The Free 1040ez Instructions

Free 1040ez instructions 11. Free 1040ez instructions   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. Free 1040ez instructions Kickbacks. Free 1040ez instructions Form 1099-MISC. Free 1040ez instructions Exception. Free 1040ez instructions Tax preparation fees. Free 1040ez instructions Covered executive branch official. Free 1040ez instructions Exceptions to denial of deduction. Free 1040ez instructions Indirect political contributions. Free 1040ez instructions Type of deduction. Free 1040ez instructions Repayment—$3,000 or less. Free 1040ez instructions Repayment—over $3,000. Free 1040ez instructions Method 1. Free 1040ez instructions Method 2. Free 1040ez instructions Repayment does not apply. Free 1040ez instructions Year of deduction (or credit). Free 1040ez instructions Telephone. Free 1040ez instructions What's New Standard mileage rate. Free 1040ez instructions  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. Free 1040ez instructions 5 cents per mile. Free 1040ez instructions For more information, see Car and truck expenses under Miscellaneous Expenses. Free 1040ez instructions Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. Free 1040ez instructions Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. Free 1040ez instructions Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. Free 1040ez instructions If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Free 1040ez instructions To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. Free 1040ez instructions Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. Free 1040ez instructions For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Free 1040ez instructions Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. Free 1040ez instructions If the expenses are substantiated, you can deduct the allowable amount on your tax return. Free 1040ez instructions Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. Free 1040ez instructions For example, you can deduct 100% of the cost of meals on your business books and records. Free 1040ez instructions However, only 50% of these costs are allowed by law as a tax deduction. Free 1040ez instructions How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. Free 1040ez instructions If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Free 1040ez instructions If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. Free 1040ez instructions If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. Free 1040ez instructions See Table 11-1 , Reporting Reimbursements. Free 1040ez instructions Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Free 1040ez instructions Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. Free 1040ez instructions An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. Free 1040ez instructions The advance is reasonably calculated not to exceed the amount of anticipated expenses. Free 1040ez instructions You make the advance within a reasonable period of time of your employee paying or incurring the expense. Free 1040ez instructions If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. Free 1040ez instructions Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Free 1040ez instructions Adequate accounting. Free 1040ez instructions   Your employees must adequately account to you for their travel, meals, and entertainment expenses. Free 1040ez instructions They must give you documentary evidence of their travel, mileage, and other employee business expenses. Free 1040ez instructions This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. Free 1040ez instructions Excess reimbursement or allowance. Free 1040ez instructions   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. Free 1040ez instructions The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Free 1040ez instructions Reasonable period of time. Free 1040ez instructions   A reasonable period of time depends on the facts and circumstances. Free 1040ez instructions Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Free 1040ez instructions You give an advance within 30 days of the time the employee pays or incurs the expense. Free 1040ez instructions Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Free 1040ez instructions Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Free 1040ez instructions You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. Free 1040ez instructions How to deduct. Free 1040ez instructions   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. Free 1040ez instructions Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Free 1040ez instructions If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). Free 1040ez instructions   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. Free 1040ez instructions S. Free 1040ez instructions Corporation Income Tax Return. Free 1040ez instructions If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. Free 1040ez instructions Table 11-1. Free 1040ez instructions Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. Free 1040ez instructions Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Free 1040ez instructions Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. Free 1040ez instructions Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Free 1040ez instructions The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Free 1040ez instructions Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. Free 1040ez instructions The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Free 1040ez instructions A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. Free 1040ez instructions No reimbursement plan The entire amount as wages in box 1. Free 1040ez instructions Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. Free 1040ez instructions In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. Free 1040ez instructions Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Free 1040ez instructions Federal rate. Free 1040ez instructions   The federal rate can be figured using any one of the following methods. Free 1040ez instructions For car expenses: The standard mileage rate. Free 1040ez instructions A fixed and variable rate (FAVR). Free 1040ez instructions For per diem amounts: The regular federal per diem rate. Free 1040ez instructions The standard meal allowance. Free 1040ez instructions The high-low rate. Free 1040ez instructions Car allowance. Free 1040ez instructions   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Free 1040ez instructions Beginning in 2013, the standard business mileage rate is 56. Free 1040ez instructions 5 cents per mile. Free 1040ez instructions   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Free 1040ez instructions This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. Free 1040ez instructions ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Free 1040ez instructions ). Free 1040ez instructions For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Free 1040ez instructions irs. Free 1040ez instructions gov/irb/2010-51_IRB/ar14. Free 1040ez instructions html and Notice 2012-72, available at www. Free 1040ez instructions irs. Free 1040ez instructions gov/irb/2012-50_IRB/ar10. Free 1040ez instructions html. Free 1040ez instructions Per diem allowance. Free 1040ez instructions   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. Free 1040ez instructions Regular federal per diem rate. Free 1040ez instructions   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. Free 1040ez instructions It has two components: Lodging expense, and Meal and incidental expense (M&IE). Free 1040ez instructions The rates are different for different locations. Free 1040ez instructions Publication 1542 lists the rates in the continental United States. Free 1040ez instructions Standard meal allowance. Free 1040ez instructions   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Free 1040ez instructions You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). Free 1040ez instructions Internet access. Free 1040ez instructions    Per diem rates are available on the Internet. Free 1040ez instructions You can access per diem rates at www. Free 1040ez instructions gsa. Free 1040ez instructions gov/perdiemrates. Free 1040ez instructions High-low method. Free 1040ez instructions   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Free 1040ez instructions It eliminates the need to keep a current list of the per diem rate for each city. Free 1040ez instructions   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. Free 1040ez instructions All other areas have a per diem amount of $163 ($52 for M&IE). Free 1040ez instructions The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Free 1040ez instructions   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Free 1040ez instructions The rate for all other locations increased to $170 ($52 for M&IE). Free 1040ez instructions For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. Free 1040ez instructions However, you must use the same rate for all employees reimbursed under the high-low method. Free 1040ez instructions   For more information about the high-low method, see Notice 2013-65, available at www. Free 1040ez instructions irs. Free 1040ez instructions gov/irb/2013-44_IRB/ar13. Free 1040ez instructions html. Free 1040ez instructions See Publication 1542 (available on the Internet at IRS. Free 1040ez instructions gov) for the current per diem rates for all locations. Free 1040ez instructions Reporting per diem and car allowances. Free 1040ez instructions   The following discussion explains how to report per diem and car allowances. Free 1040ez instructions The manner in which you report them depends on how the allowance compares to the federal rate. Free 1040ez instructions See Table 11-1. Free 1040ez instructions Allowance less than or equal to the federal rate. Free 1040ez instructions   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. Free 1040ez instructions Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Free 1040ez instructions See How to deduct under Accountable Plans, earlier. Free 1040ez instructions Allowance more than the federal rate. Free 1040ez instructions   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Free 1040ez instructions   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Free 1040ez instructions Deduct it as travel expenses (as explained above). Free 1040ez instructions This part of the allowance is treated as reimbursed under an accountable plan. Free 1040ez instructions   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. Free 1040ez instructions Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Free 1040ez instructions This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Free 1040ez instructions Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. Free 1040ez instructions The deduction limit applies even if you reimburse them for 100% of the expenses. Free 1040ez instructions Application of the 50% limit. Free 1040ez instructions   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. Free 1040ez instructions It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Free 1040ez instructions The deduction limit may also apply to meals you furnish on your premises to your employees. Free 1040ez instructions Related expenses. Free 1040ez instructions   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. Free 1040ez instructions Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. Free 1040ez instructions However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. Free 1040ez instructions Amount subject to 50% limit. Free 1040ez instructions   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. Free 1040ez instructions The per diem allowance. Free 1040ez instructions The federal rate for M&IE. Free 1040ez instructions   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. Free 1040ez instructions If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. Free 1040ez instructions Meal expenses when subject to “hours of service” limits. Free 1040ez instructions   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. Free 1040ez instructions   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Free 1040ez instructions De minimis (minimal) fringe benefit. Free 1040ez instructions   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. Free 1040ez instructions See Publication 15-B for additional information on de minimis fringe benefits. Free 1040ez instructions Company cafeteria or executive dining room. Free 1040ez instructions   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Free 1040ez instructions This includes the cost of maintaining the facilities for providing the food and beverages. Free 1040ez instructions These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). Free 1040ez instructions Employee activities. Free 1040ez instructions   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. Free 1040ez instructions The benefit must be primarily for your employees who are not highly compensated. Free 1040ez instructions   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Free 1040ez instructions Owned a 10% or more interest in the business during the year or the preceding year. Free 1040ez instructions An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Free 1040ez instructions Received more than $115,000 in pay for the preceding year. Free 1040ez instructions You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. Free 1040ez instructions   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Free 1040ez instructions Meals or entertainment treated as compensation. Free 1040ez instructions   The 50% limit does not apply to either of the following. Free 1040ez instructions Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. Free 1040ez instructions Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. Free 1040ez instructions Sales of meals or entertainment. Free 1040ez instructions   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Free 1040ez instructions For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. Free 1040ez instructions The 50% limit does not apply to this expense. Free 1040ez instructions Providing meals or entertainment to general public to promote goodwill. Free 1040ez instructions   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Free 1040ez instructions The 50% limit does not apply to this expense. Free 1040ez instructions Director, stockholder, or employee meetings. Free 1040ez instructions   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Free 1040ez instructions You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Free 1040ez instructions These expenses are subject to the 50% limit. Free 1040ez instructions Trade association meetings. Free 1040ez instructions   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Free 1040ez instructions These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Free 1040ez instructions Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Free 1040ez instructions All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Free 1040ez instructions The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Free 1040ez instructions You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. Free 1040ez instructions Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Free 1040ez instructions Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Free 1040ez instructions Advertising expenses. Free 1040ez instructions   You generally can deduct reasonable advertising expenses that are directly related to your business activities. Free 1040ez instructions Generally, you cannot deduct amounts paid to influence legislation (i. Free 1040ez instructions e. Free 1040ez instructions , lobbying). Free 1040ez instructions See Lobbying expenses , later. Free 1040ez instructions   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. Free 1040ez instructions For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Free 1040ez instructions S. Free 1040ez instructions Savings Bonds, or to participate in similar causes is usually deductible. Free 1040ez instructions Anticipated liabilities. Free 1040ez instructions   Anticipated liabilities or reserves for anticipated liabilities are not deductible. Free 1040ez instructions For example, assume you sold 1-year TV service contracts this year totaling $50,000. Free 1040ez instructions From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Free 1040ez instructions You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Free 1040ez instructions You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Free 1040ez instructions Bribes and kickbacks. Free 1040ez instructions   Engaging in the payment of bribes or kickbacks is a serious criminal matter. Free 1040ez instructions Such activity could result in criminal prosecution. Free 1040ez instructions Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. Free 1040ez instructions   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. Free 1040ez instructions Meaning of “generally enforced. Free 1040ez instructions ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. Free 1040ez instructions For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. Free 1040ez instructions Kickbacks. Free 1040ez instructions   A kickback is a payment for referring a client, patient, or customer. Free 1040ez instructions The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. Free 1040ez instructions In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. Free 1040ez instructions   For example, the Yard Corporation is in the business of repairing ships. Free 1040ez instructions It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Free 1040ez instructions Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. Free 1040ez instructions These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Free 1040ez instructions Form 1099-MISC. Free 1040ez instructions   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. Free 1040ez instructions See Form 1099-MISC for more information. Free 1040ez instructions Car and truck expenses. Free 1040ez instructions   The costs of operating a car, truck, or other vehicle in your business are deductible. Free 1040ez instructions For more information on how to figure your deduction, see Publication 463. Free 1040ez instructions Charitable contributions. Free 1040ez instructions   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Free 1040ez instructions If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Free 1040ez instructions However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Free 1040ez instructions See the Instructions for Form 1120 for more information. Free 1040ez instructions Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Free 1040ez instructions Example. Free 1040ez instructions You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Free 1040ez instructions The purpose of the ad was to encourage readers to buy your products. Free 1040ez instructions Your payment is not a charitable contribution. Free 1040ez instructions You can deduct it as an advertising expense. Free 1040ez instructions Example. Free 1040ez instructions You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Free 1040ez instructions Your payment is not a charitable contribution. Free 1040ez instructions You can deduct it as a business expense. Free 1040ez instructions See Publication 526 for a discussion of donated inventory, including capital gain property. Free 1040ez instructions Club dues and membership fees. Free 1040ez instructions   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. Free 1040ez instructions This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Free 1040ez instructions Exception. Free 1040ez instructions   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Free 1040ez instructions Boards of trade. Free 1040ez instructions Business leagues. Free 1040ez instructions Chambers of commerce. Free 1040ez instructions Civic or public service organizations. Free 1040ez instructions Professional organizations such as bar associations and medical associations. Free 1040ez instructions Real estate boards. Free 1040ez instructions Trade associations. Free 1040ez instructions Credit card convenience fees. Free 1040ez instructions   Credit card companies charge a fee to businesses who accept their cards. Free 1040ez instructions This fee when paid or incurred by the business can be deducted as a business expense. Free 1040ez instructions Damages recovered. Free 1040ez instructions   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. Free 1040ez instructions You must include this compensation in your income. Free 1040ez instructions However, you may be able to take a special deduction. Free 1040ez instructions The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Free 1040ez instructions The deduction is the smaller of the following. Free 1040ez instructions The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. Free 1040ez instructions Your losses from the injury you have not deducted. Free 1040ez instructions Demolition expenses or losses. Free 1040ez instructions   Amounts paid or incurred to demolish a structure are not deductible. Free 1040ez instructions These amounts are added to the basis of the land where the demolished structure was located. Free 1040ez instructions Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Free 1040ez instructions Education expenses. Free 1040ez instructions   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Free 1040ez instructions See Education Expenses in chapter 2. Free 1040ez instructions   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Free 1040ez instructions You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. Free 1040ez instructions For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. Free 1040ez instructions   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. Free 1040ez instructions This is true even if the education maintains or improves skills presently required in your business. Free 1040ez instructions For more information on education expenses, see Publication 970. Free 1040ez instructions Franchise, trademark, trade name. Free 1040ez instructions   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). Free 1040ez instructions   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. Free 1040ez instructions   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. Free 1040ez instructions Impairment-related expenses. Free 1040ez instructions   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. Free 1040ez instructions   You are disabled if you have either of the following. Free 1040ez instructions A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Free 1040ez instructions A physical or mental impairment that substantially limits one or more of your major life activities. Free 1040ez instructions   The expense qualifies as a business expense if all the following apply. Free 1040ez instructions Your work clearly requires the expense for you to satisfactorily perform that work. Free 1040ez instructions The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Free 1040ez instructions Their treatment is not specifically provided for under other tax law provisions. Free 1040ez instructions Example. Free 1040ez instructions You are blind. Free 1040ez instructions You must use a reader to do your work, both at and away from your place of work. Free 1040ez instructions The reader's services are only for your work. Free 1040ez instructions You can deduct your expenses for the reader as a business expense. Free 1040ez instructions Internet-related expenses. Free 1040ez instructions   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Free 1040ez instructions If you are starting a business you may have to amortize these expenses as start-up costs. Free 1040ez instructions For more information about amortizing start-up and organizational costs, see chapter 8. Free 1040ez instructions Interview expense allowances. Free 1040ez instructions   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Free 1040ez instructions You can deduct the reimbursements as a business expense. Free 1040ez instructions However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Free 1040ez instructions Legal and professional fees. Free 1040ez instructions   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. Free 1040ez instructions However, usually legal fees you pay to acquire business assets are not deductible. Free 1040ez instructions These costs are added to the basis of the property. Free 1040ez instructions   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. Free 1040ez instructions If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. Free 1040ez instructions The result is the portion of the invoice attributable to business expenses. Free 1040ez instructions The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Free 1040ez instructions   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Free 1040ez instructions However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Free 1040ez instructions See Publication 529, Miscellaneous Deductions. Free 1040ez instructions Tax preparation fees. Free 1040ez instructions   The cost of hiring a tax professional, such as a C. Free 1040ez instructions P. Free 1040ez instructions A. Free 1040ez instructions , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. Free 1040ez instructions Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Free 1040ez instructions   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. Free 1040ez instructions Licenses and regulatory fees. Free 1040ez instructions   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Free 1040ez instructions Some licenses and fees may have to be amortized. Free 1040ez instructions See chapter 8 for more information. Free 1040ez instructions Lobbying expenses. Free 1040ez instructions   Generally, lobbying expenses are not deductible. Free 1040ez instructions Lobbying expenses include amounts paid or incurred for any of the following activities. Free 1040ez instructions Influencing legislation. Free 1040ez instructions Participating in or intervening in any political campaign for, or against, any candidate for public office. Free 1040ez instructions Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Free 1040ez instructions Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Free 1040ez instructions Researching, preparing, planning, or coordinating any of the preceding activities. Free 1040ez instructions   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. Free 1040ez instructions For information on making this allocation, see section 1. Free 1040ez instructions 162-28 of the regulations. Free 1040ez instructions   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Free 1040ez instructions The organization conducts lobbying activities on matters of direct financial interest to your business. Free 1040ez instructions A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Free 1040ez instructions   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. Free 1040ez instructions Covered executive branch official. Free 1040ez instructions   For purposes of this discussion, a covered executive branch official is any of the following. Free 1040ez instructions The President. Free 1040ez instructions The Vice President. Free 1040ez instructions Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. Free 1040ez instructions Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). Free 1040ez instructions Exceptions to denial of deduction. Free 1040ez instructions   The general denial of the deduction does not apply to the following. Free 1040ez instructions Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. Free 1040ez instructions An Indian tribal government is treated as a local council or similar governing body. Free 1040ez instructions Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). Free 1040ez instructions Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). Free 1040ez instructions Moving machinery. Free 1040ez instructions   Generally, the cost of moving machinery from one city to another is a deductible expense. Free 1040ez instructions So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Free 1040ez instructions You can deduct the cost of installing the machinery in the new location. Free 1040ez instructions However, you must capitalize the costs of installing or moving newly purchased machinery. Free 1040ez instructions Outplacement services. Free 1040ez instructions   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. Free 1040ez instructions are deductible. Free 1040ez instructions   The costs of outplacement services may cover more than one deduction category. Free 1040ez instructions For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. Free 1040ez instructions   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Free 1040ez instructions Penalties and fines. Free 1040ez instructions   Penalties paid for late performance or nonperformance of a contract are generally deductible. Free 1040ez instructions For instance, you own and operate a construction company. Free 1040ez instructions Under a contract, you are to finish construction of a building by a certain date. Free 1040ez instructions Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Free 1040ez instructions You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. Free 1040ez instructions These additional costs are deductible business expenses. Free 1040ez instructions   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. Free 1040ez instructions These fines or penalties include the following amounts. Free 1040ez instructions Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Free 1040ez instructions Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. Free 1040ez instructions Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Free 1040ez instructions Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Free 1040ez instructions   Examples of nondeductible penalties and fines include the following. Free 1040ez instructions Fines for violating city housing codes. Free 1040ez instructions Fines paid by truckers for violating state maximum highway weight laws. Free 1040ez instructions Fines for violating air quality laws. Free 1040ez instructions Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Free 1040ez instructions   A fine or penalty does not include any of the following. Free 1040ez instructions Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. Free 1040ez instructions Court costs or stenographic and printing charges. Free 1040ez instructions Compensatory damages paid to a government. Free 1040ez instructions Political contributions. Free 1040ez instructions   Contributions or gifts paid to political parties or candidates are not deductible. Free 1040ez instructions In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Free 1040ez instructions Indirect political contributions. Free 1040ez instructions   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Free 1040ez instructions Examples of nondeductible expenses include the following. Free 1040ez instructions Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Free 1040ez instructions Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. Free 1040ez instructions Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Free 1040ez instructions Repairs. Free 1040ez instructions   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Free 1040ez instructions Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. Free 1040ez instructions Otherwise, the cost must be capitalized and depreciated. Free 1040ez instructions See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Free 1040ez instructions   The cost of repairs includes the costs of labor, supplies, and certain other items. Free 1040ez instructions The value of your own labor is not deductible. Free 1040ez instructions Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). Free 1040ez instructions Repayments. Free 1040ez instructions   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. Free 1040ez instructions Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Free 1040ez instructions Type of deduction. Free 1040ez instructions   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Free 1040ez instructions For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. Free 1040ez instructions If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Free 1040ez instructions   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. Free 1040ez instructions However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. Free 1040ez instructions Repayment—$3,000 or less. Free 1040ez instructions   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Free 1040ez instructions Repayment—over $3,000. Free 1040ez instructions   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Free 1040ez instructions However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. Free 1040ez instructions ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Free 1040ez instructions If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Free 1040ez instructions Method 1. Free 1040ez instructions   Figure your tax for 2013 claiming a deduction for the repaid amount. Free 1040ez instructions Method 2. Free 1040ez instructions   Figure your tax for 2013 claiming a credit for the repaid amount. Free 1040ez instructions Follow these steps. Free 1040ez instructions Figure your tax for 2013 without deducting the repaid amount. Free 1040ez instructions Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Free 1040ez instructions Subtract the tax in (2) from the tax shown on your return for the earlier year. Free 1040ez instructions This is the amount of your credit. Free 1040ez instructions Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Free 1040ez instructions   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Free 1040ez instructions   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Free 1040ez instructions R. Free 1040ez instructions C. Free 1040ez instructions 1341” next to line 71. Free 1040ez instructions Example. Free 1040ez instructions For 2012, you filed a return and reported your income on the cash method. Free 1040ez instructions In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Free 1040ez instructions Your filing status in 2013 and 2012 is single. Free 1040ez instructions Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. Free 1040ez instructions Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. Free 1040ez instructions Repayment does not apply. Free 1040ez instructions   This discussion does not apply to the following. Free 1040ez instructions Deductions for bad debts. Free 1040ez instructions Deductions from sales to customers, such as returns and allowances, and similar items. Free 1040ez instructions Deductions for legal and other expenses of contesting the repayment. Free 1040ez instructions Year of deduction (or credit). Free 1040ez instructions   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. Free 1040ez instructions If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. Free 1040ez instructions For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. Free 1040ez instructions Subscriptions. Free 1040ez instructions   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Free 1040ez instructions Supplies and materials. Free 1040ez instructions   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. Free 1040ez instructions   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. Free 1040ez instructions You do not keep a record of when they are used. Free 1040ez instructions You do not take an inventory of the amount on hand at the beginning and end of the tax year. Free 1040ez instructions This method does not distort your income. Free 1040ez instructions   You can also deduct the cost of books, professional instruments, equipment, etc. Free 1040ez instructions , if you normally use them within a year. Free 1040ez instructions However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. Free 1040ez instructions For more information regarding depreciation see Publication 946, How To Depreciate Property. Free 1040ez instructions Utilities. Free 1040ez instructions   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Free 1040ez instructions However, any part due to personal use is not deductible. Free 1040ez instructions Telephone. Free 1040ez instructions   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Free 1040ez instructions However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Free 1040ez instructions Prev  Up  Next   Home   More Online Publications