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H&r Block Free Tax Prep

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H&r Block Free Tax Prep

H&r block free tax prep 11. H&r block free tax prep   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. H&r block free tax prep Kickbacks. H&r block free tax prep Form 1099-MISC. H&r block free tax prep Exception. H&r block free tax prep Tax preparation fees. H&r block free tax prep Covered executive branch official. H&r block free tax prep Exceptions to denial of deduction. H&r block free tax prep Indirect political contributions. H&r block free tax prep Type of deduction. H&r block free tax prep Repayment—$3,000 or less. H&r block free tax prep Repayment—over $3,000. H&r block free tax prep Method 1. H&r block free tax prep Method 2. H&r block free tax prep Repayment does not apply. H&r block free tax prep Year of deduction (or credit). H&r block free tax prep Telephone. H&r block free tax prep What's New Standard mileage rate. H&r block free tax prep  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. H&r block free tax prep 5 cents per mile. H&r block free tax prep For more information, see Car and truck expenses under Miscellaneous Expenses. H&r block free tax prep Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. H&r block free tax prep 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. H&r block free tax prep Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. H&r block free tax prep For more information on travel, meals, and entertainment, including deductibility, see Publication 463. H&r block free tax prep 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. H&r block free tax prep If the expenses are substantiated, you can deduct the allowable amount on your tax return. H&r block free tax prep 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. H&r block free tax prep For example, you can deduct 100% of the cost of meals on your business books and records. H&r block free tax prep However, only 50% of these costs are allowed by law as a tax deduction. H&r block free tax prep How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. H&r block free tax prep If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep See Table 11-1 , Reporting Reimbursements. H&r block free tax prep Accountable Plans An accountable plan requires your employees to meet all of the following requirements. H&r block free tax prep 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. H&r block free tax prep An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. H&r block free tax prep The advance is reasonably calculated not to exceed the amount of anticipated expenses. H&r block free tax prep You make the advance within a reasonable period of time of your employee paying or incurring the expense. H&r block free tax prep 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. H&r block free tax prep Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. H&r block free tax prep Adequate accounting. H&r block free tax prep   Your employees must adequately account to you for their travel, meals, and entertainment expenses. H&r block free tax prep They must give you documentary evidence of their travel, mileage, and other employee business expenses. H&r block free tax prep 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. H&r block free tax prep Excess reimbursement or allowance. H&r block free tax prep   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. H&r block free tax prep The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. H&r block free tax prep Reasonable period of time. H&r block free tax prep   A reasonable period of time depends on the facts and circumstances. H&r block free tax prep 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. H&r block free tax prep You give an advance within 30 days of the time the employee pays or incurs the expense. H&r block free tax prep Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. H&r block free tax prep Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. H&r block free tax prep 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. H&r block free tax prep How to deduct. H&r block free tax prep   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. H&r block free tax prep Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. H&r block free tax prep 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). H&r block free tax prep   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. H&r block free tax prep S. H&r block free tax prep Corporation Income Tax Return. H&r block free tax prep 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. H&r block free tax prep Table 11-1. H&r block free tax prep 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. H&r block free tax prep Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. H&r block free tax prep Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. H&r block free tax prep 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. H&r block free tax prep The amount up to the federal rate is reported only in box 12—it is not reported in box 1. H&r block free tax prep 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. H&r block free tax prep The amount up to the federal rate is reported only in box 12—it is not reported in box 1. H&r block free tax prep 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. H&r block free tax prep No reimbursement plan The entire amount as wages in box 1. H&r block free tax prep Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. H&r block free tax prep 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. H&r block free tax prep Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. H&r block free tax prep Federal rate. H&r block free tax prep   The federal rate can be figured using any one of the following methods. H&r block free tax prep For car expenses: The standard mileage rate. H&r block free tax prep A fixed and variable rate (FAVR). H&r block free tax prep For per diem amounts: The regular federal per diem rate. H&r block free tax prep The standard meal allowance. H&r block free tax prep The high-low rate. H&r block free tax prep Car allowance. H&r block free tax prep   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. H&r block free tax prep Beginning in 2013, the standard business mileage rate is 56. H&r block free tax prep 5 cents per mile. H&r block free tax prep   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. H&r block free tax prep 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. H&r block free tax prep ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. H&r block free tax prep ). H&r block free tax prep For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. H&r block free tax prep irs. H&r block free tax prep gov/irb/2010-51_IRB/ar14. H&r block free tax prep html and Notice 2012-72, available at www. H&r block free tax prep irs. H&r block free tax prep gov/irb/2012-50_IRB/ar10. H&r block free tax prep html. H&r block free tax prep Per diem allowance. H&r block free tax prep   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. H&r block free tax prep Regular federal per diem rate. H&r block free tax prep   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. H&r block free tax prep It has two components: Lodging expense, and Meal and incidental expense (M&IE). H&r block free tax prep The rates are different for different locations. H&r block free tax prep Publication 1542 lists the rates in the continental United States. H&r block free tax prep Standard meal allowance. H&r block free tax prep   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. H&r block free tax prep 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). H&r block free tax prep Internet access. H&r block free tax prep    Per diem rates are available on the Internet. H&r block free tax prep You can access per diem rates at www. H&r block free tax prep gsa. H&r block free tax prep gov/perdiemrates. H&r block free tax prep High-low method. H&r block free tax prep   This is a simplified method of computing the federal per diem rate for travel within the continental United States. H&r block free tax prep It eliminates the need to keep a current list of the per diem rate for each city. H&r block free tax prep   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. H&r block free tax prep All other areas have a per diem amount of $163 ($52 for M&IE). H&r block free tax prep The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. H&r block free tax prep   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). H&r block free tax prep The rate for all other locations increased to $170 ($52 for M&IE). H&r block free tax prep 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. H&r block free tax prep However, you must use the same rate for all employees reimbursed under the high-low method. H&r block free tax prep   For more information about the high-low method, see Notice 2013-65, available at www. H&r block free tax prep irs. H&r block free tax prep gov/irb/2013-44_IRB/ar13. H&r block free tax prep html. H&r block free tax prep See Publication 1542 (available on the Internet at IRS. H&r block free tax prep gov) for the current per diem rates for all locations. H&r block free tax prep Reporting per diem and car allowances. H&r block free tax prep   The following discussion explains how to report per diem and car allowances. H&r block free tax prep The manner in which you report them depends on how the allowance compares to the federal rate. H&r block free tax prep See Table 11-1. H&r block free tax prep Allowance less than or equal to the federal rate. H&r block free tax prep   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. H&r block free tax prep Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). H&r block free tax prep See How to deduct under Accountable Plans, earlier. H&r block free tax prep Allowance more than the federal rate. H&r block free tax prep   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. H&r block free tax prep   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. H&r block free tax prep Deduct it as travel expenses (as explained above). H&r block free tax prep This part of the allowance is treated as reimbursed under an accountable plan. H&r block free tax prep   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. H&r block free tax prep Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. H&r block free tax prep This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. H&r block free tax prep 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. H&r block free tax prep The deduction limit applies even if you reimburse them for 100% of the expenses. H&r block free tax prep Application of the 50% limit. H&r block free tax prep   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. H&r block free tax prep It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. H&r block free tax prep The deduction limit may also apply to meals you furnish on your premises to your employees. H&r block free tax prep Related expenses. H&r block free tax prep   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. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep Amount subject to 50% limit. H&r block free tax prep   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. H&r block free tax prep The per diem allowance. H&r block free tax prep The federal rate for M&IE. H&r block free tax prep   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. H&r block free tax prep 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. H&r block free tax prep Meal expenses when subject to “hours of service” limits. H&r block free tax prep   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. H&r block free tax prep   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. H&r block free tax prep De minimis (minimal) fringe benefit. H&r block free tax prep   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. H&r block free tax prep See Publication 15-B for additional information on de minimis fringe benefits. H&r block free tax prep Company cafeteria or executive dining room. H&r block free tax prep   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. H&r block free tax prep This includes the cost of maintaining the facilities for providing the food and beverages. H&r block free tax prep 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). H&r block free tax prep Employee activities. H&r block free tax prep   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. H&r block free tax prep The benefit must be primarily for your employees who are not highly compensated. H&r block free tax prep   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. H&r block free tax prep Owned a 10% or more interest in the business during the year or the preceding year. H&r block free tax prep An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. H&r block free tax prep Received more than $115,000 in pay for the preceding year. H&r block free tax prep You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. H&r block free tax prep   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. H&r block free tax prep Meals or entertainment treated as compensation. H&r block free tax prep   The 50% limit does not apply to either of the following. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep Sales of meals or entertainment. H&r block free tax prep   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. H&r block free tax prep 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. H&r block free tax prep The 50% limit does not apply to this expense. H&r block free tax prep Providing meals or entertainment to general public to promote goodwill. H&r block free tax prep   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. H&r block free tax prep The 50% limit does not apply to this expense. H&r block free tax prep Director, stockholder, or employee meetings. H&r block free tax prep   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. H&r block free tax prep You can provide some minor social activities, but the main purpose of the meeting must be your company's business. H&r block free tax prep These expenses are subject to the 50% limit. H&r block free tax prep Trade association meetings. H&r block free tax prep   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. H&r block free tax prep These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. H&r block free tax prep Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. H&r block free tax prep All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. H&r block free tax prep The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. H&r block free tax prep You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. H&r block free tax prep Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. H&r block free tax prep Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. H&r block free tax prep Advertising expenses. H&r block free tax prep   You generally can deduct reasonable advertising expenses that are directly related to your business activities. H&r block free tax prep Generally, you cannot deduct amounts paid to influence legislation (i. H&r block free tax prep e. H&r block free tax prep , lobbying). H&r block free tax prep See Lobbying expenses , later. H&r block free tax prep   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. H&r block free tax prep For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. H&r block free tax prep S. H&r block free tax prep Savings Bonds, or to participate in similar causes is usually deductible. H&r block free tax prep Anticipated liabilities. H&r block free tax prep   Anticipated liabilities or reserves for anticipated liabilities are not deductible. H&r block free tax prep For example, assume you sold 1-year TV service contracts this year totaling $50,000. H&r block free tax prep From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. H&r block free tax prep You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. H&r block free tax prep You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. H&r block free tax prep Bribes and kickbacks. H&r block free tax prep   Engaging in the payment of bribes or kickbacks is a serious criminal matter. H&r block free tax prep Such activity could result in criminal prosecution. H&r block free tax prep 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. H&r block free tax prep   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. H&r block free tax prep Meaning of “generally enforced. H&r block free tax prep ”   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. H&r block free tax prep For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. H&r block free tax prep Kickbacks. H&r block free tax prep   A kickback is a payment for referring a client, patient, or customer. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep   For example, the Yard Corporation is in the business of repairing ships. H&r block free tax prep It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. H&r block free tax prep 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. H&r block free tax prep These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. H&r block free tax prep Form 1099-MISC. H&r block free tax prep   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. H&r block free tax prep See Form 1099-MISC for more information. H&r block free tax prep Car and truck expenses. H&r block free tax prep   The costs of operating a car, truck, or other vehicle in your business are deductible. H&r block free tax prep For more information on how to figure your deduction, see Publication 463. H&r block free tax prep Charitable contributions. H&r block free tax prep   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. H&r block free tax prep If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. H&r block free tax prep However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. H&r block free tax prep See the Instructions for Form 1120 for more information. H&r block free tax prep 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). H&r block free tax prep Example. H&r block free tax prep You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. H&r block free tax prep The purpose of the ad was to encourage readers to buy your products. H&r block free tax prep Your payment is not a charitable contribution. H&r block free tax prep You can deduct it as an advertising expense. H&r block free tax prep Example. H&r block free tax prep 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. H&r block free tax prep Your payment is not a charitable contribution. H&r block free tax prep You can deduct it as a business expense. H&r block free tax prep See Publication 526 for a discussion of donated inventory, including capital gain property. H&r block free tax prep Club dues and membership fees. H&r block free tax prep   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. H&r block free tax prep 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. H&r block free tax prep Exception. H&r block free tax prep   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. H&r block free tax prep Boards of trade. H&r block free tax prep Business leagues. H&r block free tax prep Chambers of commerce. H&r block free tax prep Civic or public service organizations. H&r block free tax prep Professional organizations such as bar associations and medical associations. H&r block free tax prep Real estate boards. H&r block free tax prep Trade associations. H&r block free tax prep Credit card convenience fees. H&r block free tax prep   Credit card companies charge a fee to businesses who accept their cards. H&r block free tax prep This fee when paid or incurred by the business can be deducted as a business expense. H&r block free tax prep Damages recovered. H&r block free tax prep   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. H&r block free tax prep You must include this compensation in your income. H&r block free tax prep However, you may be able to take a special deduction. H&r block free tax prep The deduction applies only to amounts recovered for actual economic injury, not any additional amount. H&r block free tax prep The deduction is the smaller of the following. H&r block free tax prep 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. H&r block free tax prep Your losses from the injury you have not deducted. H&r block free tax prep Demolition expenses or losses. H&r block free tax prep   Amounts paid or incurred to demolish a structure are not deductible. H&r block free tax prep These amounts are added to the basis of the land where the demolished structure was located. H&r block free tax prep Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. H&r block free tax prep Education expenses. H&r block free tax prep   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. H&r block free tax prep See Education Expenses in chapter 2. H&r block free tax prep   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep   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. H&r block free tax prep This is true even if the education maintains or improves skills presently required in your business. H&r block free tax prep For more information on education expenses, see Publication 970. H&r block free tax prep Franchise, trademark, trade name. H&r block free tax prep   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). H&r block free tax prep   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. H&r block free tax prep   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. H&r block free tax prep Impairment-related expenses. H&r block free tax prep   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. H&r block free tax prep   You are disabled if you have either of the following. H&r block free tax prep A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. H&r block free tax prep A physical or mental impairment that substantially limits one or more of your major life activities. H&r block free tax prep   The expense qualifies as a business expense if all the following apply. H&r block free tax prep Your work clearly requires the expense for you to satisfactorily perform that work. H&r block free tax prep The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. H&r block free tax prep Their treatment is not specifically provided for under other tax law provisions. H&r block free tax prep Example. H&r block free tax prep You are blind. H&r block free tax prep You must use a reader to do your work, both at and away from your place of work. H&r block free tax prep The reader's services are only for your work. H&r block free tax prep You can deduct your expenses for the reader as a business expense. H&r block free tax prep Internet-related expenses. H&r block free tax prep   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. H&r block free tax prep If you are starting a business you may have to amortize these expenses as start-up costs. H&r block free tax prep For more information about amortizing start-up and organizational costs, see chapter 8. H&r block free tax prep Interview expense allowances. H&r block free tax prep   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. H&r block free tax prep You can deduct the reimbursements as a business expense. H&r block free tax prep However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. H&r block free tax prep Legal and professional fees. H&r block free tax prep   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. H&r block free tax prep However, usually legal fees you pay to acquire business assets are not deductible. H&r block free tax prep These costs are added to the basis of the property. H&r block free tax prep   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. H&r block free tax prep 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. H&r block free tax prep The result is the portion of the invoice attributable to business expenses. H&r block free tax prep The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). H&r block free tax prep   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. H&r block free tax prep However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. H&r block free tax prep See Publication 529, Miscellaneous Deductions. H&r block free tax prep Tax preparation fees. H&r block free tax prep   The cost of hiring a tax professional, such as a C. H&r block free tax prep P. H&r block free tax prep A. H&r block free tax prep , 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. H&r block free tax prep Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. H&r block free tax prep   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. H&r block free tax prep Licenses and regulatory fees. H&r block free tax prep   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. H&r block free tax prep Some licenses and fees may have to be amortized. H&r block free tax prep See chapter 8 for more information. H&r block free tax prep Lobbying expenses. H&r block free tax prep   Generally, lobbying expenses are not deductible. H&r block free tax prep Lobbying expenses include amounts paid or incurred for any of the following activities. H&r block free tax prep Influencing legislation. H&r block free tax prep Participating in or intervening in any political campaign for, or against, any candidate for public office. H&r block free tax prep Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. H&r block free tax prep Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. H&r block free tax prep Researching, preparing, planning, or coordinating any of the preceding activities. H&r block free tax prep   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. H&r block free tax prep For information on making this allocation, see section 1. H&r block free tax prep 162-28 of the regulations. H&r block free tax prep   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. H&r block free tax prep The organization conducts lobbying activities on matters of direct financial interest to your business. H&r block free tax prep A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. H&r block free tax prep   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. H&r block free tax prep Covered executive branch official. H&r block free tax prep   For purposes of this discussion, a covered executive branch official is any of the following. H&r block free tax prep The President. H&r block free tax prep The Vice President. H&r block free tax prep 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. H&r block free tax prep 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). H&r block free tax prep Exceptions to denial of deduction. H&r block free tax prep   The general denial of the deduction does not apply to the following. H&r block free tax prep 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. H&r block free tax prep An Indian tribal government is treated as a local council or similar governing body. H&r block free tax prep 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). H&r block free tax prep 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). H&r block free tax prep Moving machinery. H&r block free tax prep   Generally, the cost of moving machinery from one city to another is a deductible expense. H&r block free tax prep So is the cost of moving machinery from one plant to another, or from one part of your plant to another. H&r block free tax prep You can deduct the cost of installing the machinery in the new location. H&r block free tax prep However, you must capitalize the costs of installing or moving newly purchased machinery. H&r block free tax prep Outplacement services. H&r block free tax prep   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. H&r block free tax prep are deductible. H&r block free tax prep   The costs of outplacement services may cover more than one deduction category. H&r block free tax prep 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. H&r block free tax prep   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. H&r block free tax prep Penalties and fines. H&r block free tax prep   Penalties paid for late performance or nonperformance of a contract are generally deductible. H&r block free tax prep For instance, you own and operate a construction company. H&r block free tax prep Under a contract, you are to finish construction of a building by a certain date. H&r block free tax prep Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. H&r block free tax prep You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. H&r block free tax prep These additional costs are deductible business expenses. H&r block free tax prep   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. H&r block free tax prep These fines or penalties include the following amounts. H&r block free tax prep Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. H&r block free tax prep 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. H&r block free tax prep Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. H&r block free tax prep Forfeited as collateral posted for a proceeding that could result in a fine or penalty. H&r block free tax prep   Examples of nondeductible penalties and fines include the following. H&r block free tax prep Fines for violating city housing codes. H&r block free tax prep Fines paid by truckers for violating state maximum highway weight laws. H&r block free tax prep Fines for violating air quality laws. H&r block free tax prep Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. H&r block free tax prep   A fine or penalty does not include any of the following. H&r block free tax prep 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. H&r block free tax prep Court costs or stenographic and printing charges. H&r block free tax prep Compensatory damages paid to a government. H&r block free tax prep Political contributions. H&r block free tax prep   Contributions or gifts paid to political parties or candidates are not deductible. H&r block free tax prep In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. H&r block free tax prep Indirect political contributions. H&r block free tax prep   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. H&r block free tax prep Examples of nondeductible expenses include the following. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. H&r block free tax prep Repairs. H&r block free tax prep   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. H&r block free tax prep 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. H&r block free tax prep Otherwise, the cost must be capitalized and depreciated. H&r block free tax prep See Form 4562 and its instructions for how to compute and claim the depreciation deduction. H&r block free tax prep   The cost of repairs includes the costs of labor, supplies, and certain other items. H&r block free tax prep The value of your own labor is not deductible. H&r block free tax prep 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). H&r block free tax prep Repayments. H&r block free tax prep   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. H&r block free tax prep 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. H&r block free tax prep Type of deduction. H&r block free tax prep   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. H&r block free tax prep For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. H&r block free tax prep 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). H&r block free tax prep   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. H&r block free tax prep 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. H&r block free tax prep Repayment—$3,000 or less. H&r block free tax prep   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. H&r block free tax prep Repayment—over $3,000. H&r block free tax prep   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. H&r block free tax prep 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. H&r block free tax prep ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. H&r block free tax prep If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. H&r block free tax prep Method 1. H&r block free tax prep   Figure your tax for 2013 claiming a deduction for the repaid amount. H&r block free tax prep Method 2. H&r block free tax prep   Figure your tax for 2013 claiming a credit for the repaid amount. H&r block free tax prep Follow these steps. H&r block free tax prep Figure your tax for 2013 without deducting the repaid amount. H&r block free tax prep Refigure your tax from the earlier year without including in income the amount you repaid in 2013. H&r block free tax prep Subtract the tax in (2) from the tax shown on your return for the earlier year. H&r block free tax prep This is the amount of your credit. H&r block free tax prep Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). H&r block free tax prep   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. H&r block free tax prep   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. H&r block free tax prep R. H&r block free tax prep C. H&r block free tax prep 1341” next to line 71. H&r block free tax prep Example. H&r block free tax prep For 2012, you filed a return and reported your income on the cash method. H&r block free tax prep In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. H&r block free tax prep Your filing status in 2013 and 2012 is single. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep Repayment does not apply. H&r block free tax prep   This discussion does not apply to the following. H&r block free tax prep Deductions for bad debts. H&r block free tax prep Deductions from sales to customers, such as returns and allowances, and similar items. H&r block free tax prep Deductions for legal and other expenses of contesting the repayment. H&r block free tax prep Year of deduction (or credit). H&r block free tax prep   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. H&r block free tax prep 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. H&r block free tax prep 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. H&r block free tax prep Subscriptions. H&r block free tax prep   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. H&r block free tax prep Supplies and materials. H&r block free tax prep   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. H&r block free tax prep   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. H&r block free tax prep You do not keep a record of when they are used. H&r block free tax prep You do not take an inventory of the amount on hand at the beginning and end of the tax year. H&r block free tax prep This method does not distort your income. H&r block free tax prep   You can also deduct the cost of books, professional instruments, equipment, etc. H&r block free tax prep , if you normally use them within a year. H&r block free tax prep 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. H&r block free tax prep For more information regarding depreciation see Publication 946, How To Depreciate Property. H&r block free tax prep Utilities. H&r block free tax prep   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. H&r block free tax prep However, any part due to personal use is not deductible. H&r block free tax prep Telephone. H&r block free tax prep   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. H&r block free tax prep 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. 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Deductions

How Much is My Standard Deduction?
Determine the maximum Standard Deduction you can claim.

Can I Deduct My Charitable Contributions?
Determine who may deduct charitable contributions.

Can I Deduct My Mortgage Related Expenses?
Determine who can deduct mortgage interest, points or mortgage insurance premiums

Can I Claim My Expenses as Miscellaneous Itemized Deductions on Schedule A (Form 1040)?
Determine if miscellaneous expenses are deductible on Schedule A (Form 1040)

Do I Need To Claim My Gambling Winnings and Can I Deduct My Gambling Losses?
Determine who will need to claim gambling winnings and deduct gamling losses.

Can I Deduct My Medical and Dental Expenses?
Determine if you can deduct medical and dental expenses.

Can I Deduct My Moving Expenses?
Determine who may claim moving expenses.

Can I Claim a Deduction For Student Loan Interest?
Determine if you are eligible to deduct the interest that you paid on a student loan.

Page Last Reviewed or Updated: 14-Feb-2014

The H&r Block Free Tax Prep

H&r block free tax prep Publication 527 - Additional Material Prev  Up  Next   Home   More Online Publications