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H R Block Home 2012

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H R Block Home 2012

H r block home 2012 Index A Accelerated death benefits, Accelerated Death Benefits Accounting periods Change in, standard deduction not allowed, Persons not eligible for the standard deduction. H r block home 2012 Accrued leave payment Disability retirement and, Accrued leave payment. H r block home 2012 Adjusted gross income (AGI), Adjustments to Income Adjustments to income, Adjustments to Income Age Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). H r block home 2012 Age 65, Qualified Individual American Association of Retired Persons (AARP), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H r block home 2012 Annuities, Pensions and Annuities Assistance (see Tax help) B Base amount, social security benefits, Base Amount Benefits Accident or health, Other compensation. H r block home 2012 Long-term care, Long-Term Care Insurance Contracts No-fault insurance, Other compensation. H r block home 2012 Sickness and injury, Sickness and Injury Benefits Social security, Are Any of Your Benefits Taxable? Veterans', Veterans' benefits. H r block home 2012 Bequests, Gifts and inheritances. H r block home 2012 Blind persons Standard deduction for, Higher standard deduction for blindness. H r block home 2012 C Child and dependent care credit, Child and Dependent Care Credit Children Standard deduction for, Standard Deduction for Dependents Chronically ill persons, Chronically ill individual. H r block home 2012 Chronically ill, defined, Terminally or chronically ill defined. H r block home 2012 Compensation For services, Compensation for Services Loss or disfigurement, Other compensation. H r block home 2012 Contributions Foreign employment, Foreign employment contributions. H r block home 2012 Pension or annuity, Cost. H r block home 2012 Cost, pension or annuity, Cost. H r block home 2012 Credit Child and dependent care, Child and Dependent Care Credit Earned income, Earned Income Credit (EIC) The elderly or the disabled, Credit for the Elderly or the Disabled Credit for the elderly or the disabled, Credit for the Elderly or the Disabled D Death benefit, accelerated, Accelerated Death Benefits Decedents, Dependents. H r block home 2012 Standard deduction, Decedent's final return. H r block home 2012 Deductions Generally, Deductions Insurance premiums, Medical Insurance Premiums Itemized, Itemized Deductions Meals and lodging, Meals and Lodging Medical and dental, Medical and Dental Expenses Standard, Standard Deduction Dependents, Dependents. H r block home 2012 Standard deduction for, Standard Deduction for Dependents Disabilities, individuals with Ownership and use test, Exception to use test for individuals with a disability. H r block home 2012 Disability Person with, Persons with disabilities. H r block home 2012 Physician's statement, Physician's statement. H r block home 2012 Total and permanent, Permanent and total disability. H r block home 2012 Disability income, Disability Pensions, Other compensation. H r block home 2012 , Disability income. H r block home 2012 Distributions, retirement plan, Retirement Plan Distributions Drugs (see Medicines) Dual-status taxpayers Standard deduction, Persons not eligible for the standard deduction. H r block home 2012 E Early distributions, tax, Tax on Early Distributions Earned income credit, Earned Income Credit (EIC) Elderly or disabled credit, Credit for the Elderly or the Disabled Elderly persons Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). H r block home 2012 Employment tax withholding, Reminders Employment taxes, Employment taxes. H r block home 2012 Endowment proceeds, Endowment Contract Proceeds Estimated tax, Tax Withholding and Estimated Tax, Estimated Tax, Who Must Make Estimated Tax Payments Excess accumulation, tax on, Tax on Excess Accumulation Exclusion, gain on sale of home, Maximum Amount of Exclusion F Federal Employees Compensation Act (FECA) payments, Federal Employees' Compensation Act (FECA). H r block home 2012 Filing requirements Decedents, Dependents. H r block home 2012 General requirements, General Requirements Surviving spouse, Surviving spouse. H r block home 2012 Final return for decedent Standard deduction, Decedent's final return. H r block home 2012 First-time homebuyer credit Recapture, Repaying the first-time homebuyer credit because you sold your home. H r block home 2012 Form, Credit for the Elderly or the Disabled, Physician's statement. H r block home 2012 1099-R, Form 1099-R. H r block home 2012 , Form 1099-R. H r block home 2012 5329, Form 5329. H r block home 2012 8853, Accelerated Death Benefits Schedule R, Credit for the Elderly or the Disabled, Physician's statement. H r block home 2012 W-4P, Withholding. H r block home 2012 Free tax services, Free help with your tax return. H r block home 2012 G Gain on sale of home (see Sale of home) General rule, pension or annuity, Pensions and Annuities Gifts, Gifts and inheritances. H r block home 2012 H Help (see Tax help) Home care (see Nursing services) Home improvements, Home Improvements Home, sale of, Sale of Home Hospital services, Hospital Services Household help, Household Help I Income Adjustments, Adjustments to Income Disability, Disability Pensions, Disability income. H r block home 2012 Gross, defined, Gross income. H r block home 2012 Nontaxable, Taxable and Nontaxable Income Sale of home, Sale of Home Self-employment, Self-employed persons. H r block home 2012 Taxable, Taxable and Nontaxable Income Individual retirement arrangement (IRA) Adjustments to income, Individual Retirement Arrangement (IRA) Contributions and Deductions Contributions, Contributions. H r block home 2012 Deductible contribution, Deductible contribution. H r block home 2012 Distributions, Individual Retirement Arrangements (IRAs) Inheritances, Gifts and inheritances. H r block home 2012 Injury benefits, Sickness and Injury Benefits, Cost paid by you. H r block home 2012 Insurance Accident and health, Other compensation. H r block home 2012 , Medical Insurance Premiums Benefits, long-term care, Long-Term Care Insurance Contracts Benefits, no-fault insurance, Other compensation. H r block home 2012 Life insurance proceeds, Life Insurance Proceeds Proceeds paid after death, Life Insurance Proceeds Proceeds paid before death, Accelerated Death Benefits Insurance premiums for retired public safety officers, Insurance Premiums for Retired Public Safety Officers Itemized deductions, Itemized Deductions Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. H r block home 2012 L Life insurance proceeds, Life Insurance Proceeds Long-term care, Long-Term Care Chronically ill individuals, Chronically ill individual. H r block home 2012 Maintenance and personal care services, Maintenance and personal care services. H r block home 2012 Qualified insurance contracts, Qualified long-term care insurance contracts. H r block home 2012 Qualified services, Qualified long-term care services. H r block home 2012 Long-term care insurance, Long-Term Care Insurance Contracts Loss or disfigurement compensation, Other compensation. H r block home 2012 Lump-sum distributions, Lump-sum distributions. H r block home 2012 Lump-sum election, social security, Lump-Sum Election M Maintenance and personal care services, Maintenance and personal care services. H r block home 2012 Married filing separately Itemized deductions One spouse has itemized so other must as well, Persons not eligible for the standard deduction. H r block home 2012 Married taxpayers Age 65 or older spouse Standard deduction, Spouse 65 or older or blind. H r block home 2012 Blind spouse Standard deduction, Spouse 65 or older or blind. H r block home 2012 Meals and lodging expenses, Meals and Lodging Medical expenses, Medical and Dental Expenses Medicare, Medicare Part A. H r block home 2012 , Medicare Part B. H r block home 2012 , Medicare Part D. H r block home 2012 Benefits, Medicare. H r block home 2012 Medicines, Medicines Imported, Imported medicines and drugs. H r block home 2012 Military retirement pay, Military Retirement Pay Minimum distributions, Tax on Excess Accumulation Minimum wage, Substantial gainful activity. H r block home 2012 Missing children, Reminders Mortgage assistance payments, Mortgage assistance payments. H r block home 2012 N Nonperiodic distributions, Nonperiodic Distributions Nonqualified use, Period of nonqualified use. H r block home 2012 Nonresident aliens Standard deduction, Persons not eligible for the standard deduction. H r block home 2012 Nontaxable income, Payments from a state fund for victims of crime. H r block home 2012 Accident or health insurance benefits, Other compensation. H r block home 2012 Bequests, Gifts and inheritances. H r block home 2012 Generally, Taxable and Nontaxable Income Gifts, Gifts and inheritances. H r block home 2012 Inheritances, Gifts and inheritances. H r block home 2012 Mortgage assistance payments, Mortgage assistance payments. H r block home 2012 No-fault insurance benefits, Other compensation. H r block home 2012 Nutrition program for elderly, Nutrition Program for the Elderly. H r block home 2012 Public assistance payments, Welfare benefits. H r block home 2012 Sickness and injury benefits, Sickness and Injury Benefits Veterans' benefits, Veterans' benefits. H r block home 2012 Winter energy use, Payments to reduce cost of winter energy use. H r block home 2012 Workers' compensation, Workers' Compensation Nursing home, Nursing home. H r block home 2012 Nursing services, Nursing Services Chronically ill individuals, Chronically ill individual. H r block home 2012 Nutrition program for elderly, Nutrition Program for the Elderly. H r block home 2012 O Old-age, survivors, and disability insurance benefits (OASDI), Old-age, survivors, and disability insurance benefits (OASDI). H r block home 2012 Other items, Other Items Overall limitation, Overall limitation. H r block home 2012 P Payments, estimated tax, Estimated Tax Pensions, Pensions and Annuities Pensions, disability, Disability Pensions Photographs, missing children, Reminders Physician's statement, disability, Physician's statement. H r block home 2012 Prepaid insurance premiums, Prepaid insurance premiums. H r block home 2012 Preparer, paid, Reminders Preparing your return, Return preparation assistance. H r block home 2012 Profit-sharing plan, Retirement and profit-sharing plans. H r block home 2012 Public assistance payments, Welfare benefits. H r block home 2012 Publications (see Tax help) Q Qualified retirement plan, Tax on Early Distributions R Railroad retirement benefits, Railroad Retirement Benefits, Social Security and Equivalent Railroad Retirement Benefits Repayments Social security benefits, Repayment of Benefits Reporting pension income, How to report. H r block home 2012 Residence, sale of, Sale of Home Retirement plans, distributions, Retirement Plan Distributions Returns Decedent, Dependents. H r block home 2012 Executors and administrators, Dependents. H r block home 2012 Filing requirements, 2013 Filing Requirements Surviving spouse, Surviving spouse. H r block home 2012 Reverse mortgages, Reverse Mortgages S Salaries (see Compensation) Sale of Home First-time homebuyer credit, Repaying the first-time homebuyer credit because you sold your home. H r block home 2012 Surviving spouse, Reminders Sale of home, Sale of Home Self-employed, Self-employed persons. H r block home 2012 Short tax year Change in annual accounting period, Persons not eligible for the standard deduction. H r block home 2012 Sickness and injury benefits, Sickness and Injury Benefits Simplified method, Pensions and Annuities Social security benefits, Social Security and Equivalent Railroad Retirement Benefits Standard deduction, Standard Deduction Age 65 or older, Higher standard deduction for age (65 or older). H r block home 2012 Blind persons, Higher standard deduction for blindness. H r block home 2012 Dependents, Standard Deduction for Dependents Final return of decedent, Decedent's final return. H r block home 2012 Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. H r block home 2012 Starting date, annuity, Cost. H r block home 2012 State fund for victims of crime, Payments from a state fund for victims of crime. H r block home 2012 Substantial gainful activity, Substantial gainful activity. H r block home 2012 Surrender of Iife insurance, Surrender of policy for cash. H r block home 2012 Surviving Spouse, Reminders Surviving spouse, Surviving spouse. H r block home 2012 Surviving spouse, insurance, Surviving spouse. H r block home 2012 Survivors of retirees, Survivors of retirees. H r block home 2012 T Tax Early distributions, Tax on Early Distributions Estimated, Tax Withholding and Estimated Tax, Estimated Tax Excess accumulation, Tax on Excess Accumulation Tax counseling for the elderly (TCE), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H r block home 2012 Tax help, How To Get Tax Help Tax option, 10-year, Lump-sum distributions. H r block home 2012 Tax return preparers, Reminders Taxable income, Taxable and Nontaxable Income Taxation of benefits, Are Any of Your Benefits Taxable? Terminally ill, defined, Terminally or chronically ill defined. H r block home 2012 Total and permanent disability, defined, Permanent and total disability. H r block home 2012 Transportation expenses, Transportation TTY/TDD information, How To Get Tax Help U U. H r block home 2012 S. H r block home 2012 citizen or resident, U. H r block home 2012 S. H r block home 2012 citizen or resident alien. H r block home 2012 Unemployment compensation, Unemployment compensation. H r block home 2012 V Veterans' benefits, Veterans' benefits. H r block home 2012 Viatical settlement, Accelerated Death Benefits Victims of crime, Payments from a state fund for victims of crime. H r block home 2012 Volunteer income tax assistance (VITA), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H r block home 2012 Volunteer work, Volunteer work. H r block home 2012 W Wages (see Compensation) Winter energy use payments, Payments to reduce cost of winter energy use. H r block home 2012 Withholding Employment tax, Reminders Pensions and annuities, Withholding. H r block home 2012 Workers' compensation, Workers' Compensation Worksheets, social security, Which worksheet to use. H r block home 2012 Prev  Up     Home   More Online Publications
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The H R Block Home 2012

H r block home 2012 1. H r block home 2012   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. H r block home 2012 At-risk limits. H r block home 2012 Passive activities. H r block home 2012 Net operating loss. H r block home 2012 When Can I Deduct an Expense?Economic performance. H r block home 2012 Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. H r block home 2012  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. H r block home 2012 See Optional safe harbor method under Business use of your home , later. H r block home 2012 Introduction This chapter covers the general rules for deducting business expenses. H r block home 2012 Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. H r block home 2012 Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. H r block home 2012 What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. H r block home 2012 An ordinary expense is one that is common and accepted in your industry. H r block home 2012 A necessary expense is one that is helpful and appropriate for your trade or business. H r block home 2012 An expense does not have to be indispensable to be considered necessary. H r block home 2012 Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. H r block home 2012 In some cases you may not be allowed to deduct the expense at all. H r block home 2012 Therefore, it is important to distinguish usual business expenses from expenses that include the following. H r block home 2012 The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. H r block home 2012 Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. H r block home 2012 Some of your business expenses may be included in figuring cost of goods sold. H r block home 2012 Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. H r block home 2012 If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. H r block home 2012 The following are types of expenses that go into figuring cost of goods sold. H r block home 2012 The cost of products or raw materials, including freight. H r block home 2012 Storage. H r block home 2012 Direct labor (including contributions to pension or annuity plans) for workers who produce the products. H r block home 2012 Factory overhead. H r block home 2012 Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. H r block home 2012 Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. H r block home 2012 This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. H r block home 2012 For more information, see the following sources. H r block home 2012 Cost of goods sold—chapter 6 of Publication 334. H r block home 2012 Inventories—Publication 538. H r block home 2012 Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. H r block home 2012 Capital Expenses You must capitalize, rather than deduct, some costs. H r block home 2012 These costs are a part of your investment in your business and are called “capital expenses. H r block home 2012 ” Capital expenses are considered assets in your business. H r block home 2012 In general, you capitalize three types of costs. H r block home 2012 Business start-up costs (See Tip below). H r block home 2012 Business assets. H r block home 2012 Improvements. H r block home 2012 You can elect to deduct or amortize certain business start-up costs. H r block home 2012 See chapters 7 and 8. H r block home 2012 Cost recovery. H r block home 2012   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. H r block home 2012 These recovery methods allow you to deduct part of your cost each year. H r block home 2012 In this way, you are able to recover your capital expense. H r block home 2012 See Amortization (chapter 8) and Depletion (chapter 9) in this publication. H r block home 2012 A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. H r block home 2012 A greater portion of these costs can be deducted if the property is qualified disaster assistance property. H r block home 2012 See Publication 946 for details. H r block home 2012 Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. H r block home 2012 These costs may include expenses for advertising, travel, or wages for training employees. H r block home 2012 If you go into business. H r block home 2012   When you go into business, treat all costs you had to get your business started as capital expenses. H r block home 2012   Usually you recover costs for a particular asset through depreciation. H r block home 2012 Generally, you cannot recover other costs until you sell the business or otherwise go out of business. H r block home 2012 However, you can choose to amortize certain costs for setting up your business. H r block home 2012 See Starting a Business in chapter 8 for more information on business start-up costs. H r block home 2012 If your attempt to go into business is unsuccessful. H r block home 2012   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. H r block home 2012 The costs you had before making a decision to acquire or begin a specific business. H r block home 2012 These costs are personal and nondeductible. H r block home 2012 They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. H r block home 2012 The costs you had in your attempt to acquire or begin a specific business. H r block home 2012 These costs are capital expenses and you can deduct them as a capital loss. H r block home 2012   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. H r block home 2012   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. H r block home 2012 You cannot take a deduction for these costs. H r block home 2012 You will recover the costs of these assets when you dispose of them. H r block home 2012 Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. H r block home 2012 You must fully capitalize the cost of these assets, including freight and installation charges. H r block home 2012 Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. H r block home 2012 See Regulations section 1. H r block home 2012 263A-2 for information on these rules. H r block home 2012 Improvements Improvements are generally major expenditures. H r block home 2012 Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. H r block home 2012 The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. H r block home 2012 Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. H r block home 2012 Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. H r block home 2012 However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. H r block home 2012 Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. H r block home 2012 Restoration plan. H r block home 2012   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. H r block home 2012 This applies even if some of the work would by itself be classified as repairs. H r block home 2012 Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. H r block home 2012 Motor vehicles. H r block home 2012   You usually capitalize the cost of a motor vehicle you use in your business. H r block home 2012 You can recover its cost through annual deductions for depreciation. H r block home 2012   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. H r block home 2012 See Publication 463. H r block home 2012   Generally, repairs you make to your business vehicle are currently deductible. H r block home 2012 However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. H r block home 2012 Roads and driveways. H r block home 2012    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. H r block home 2012 The cost of maintaining a private road on your business property is a deductible expense. H r block home 2012 Tools. H r block home 2012   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. H r block home 2012 Machinery parts. H r block home 2012   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. H r block home 2012 Heating equipment. H r block home 2012   The cost of changing from one heating system to another is a capital expense. H r block home 2012 Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. H r block home 2012 However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. H r block home 2012 You can deduct the business part. H r block home 2012 For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. H r block home 2012 The remaining 30% is personal interest and generally is not deductible. H r block home 2012 See chapter 4 for information on deducting interest and the allocation rules. H r block home 2012 Business use of your home. H r block home 2012   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. H r block home 2012 These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. H r block home 2012   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. H r block home 2012 The business part of your home must be used exclusively and regularly for your trade or business. H r block home 2012 The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. H r block home 2012   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. H r block home 2012   Your home office qualifies as your principal place of business if you meet the following requirements. H r block home 2012 You use the office exclusively and regularly for administrative or management activities of your trade or business. H r block home 2012 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. H r block home 2012   If you have more than one business location, determine your principal place of business based on the following factors. H r block home 2012 The relative importance of the activities performed at each location. H r block home 2012 If the relative importance factor does not determine your principal place of business, consider the time spent at each location. H r block home 2012 Optional safe harbor method. H r block home 2012   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. H r block home 2012 This method is an alternative to the calculation, allocation, and substantiation of actual expenses. H r block home 2012   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. H r block home 2012 Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). H r block home 2012 You are not required to allocate these deductions between personal and business use, as is required under the regular method. H r block home 2012 If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. H r block home 2012   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. H r block home 2012 All of the requirements discussed earlier under Business use of your home still apply. H r block home 2012   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. H r block home 2012    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. H r block home 2012 Business use of your car. H r block home 2012   If you use your car exclusively in your business, you can deduct car expenses. H r block home 2012 If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. H r block home 2012 Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. H r block home 2012   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. H r block home 2012 Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. H r block home 2012 Beginning in 2013, the standard mileage rate is 56. H r block home 2012 5 cents per mile. H r block home 2012   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. H r block home 2012   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. H r block home 2012 How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. H r block home 2012 Recovery of amount deducted (tax benefit rule). H r block home 2012   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. H r block home 2012 If you have a recovery in a later year, include the recovered amount in income in that year. H r block home 2012 However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. H r block home 2012   For more information on recoveries and the tax benefit rule, see Publication 525. H r block home 2012 Payments in kind. H r block home 2012   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. H r block home 2012 You cannot deduct the cost of your own labor. H r block home 2012   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. H r block home 2012 If these costs are included in the cost of goods sold, do not deduct them again as a business expense. H r block home 2012 Limits on losses. H r block home 2012   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. H r block home 2012 There may be limits on how much of the loss you can deduct. H r block home 2012 Not-for-profit limits. H r block home 2012   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. H r block home 2012 See Not-for-Profit Activities , later. H r block home 2012 At-risk limits. H r block home 2012   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. H r block home 2012 You are at risk in any activity for the following. H r block home 2012 The money and adjusted basis of property you contribute to the activity. H r block home 2012 Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. H r block home 2012 For more information, see Publication 925. H r block home 2012 Passive activities. H r block home 2012   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. H r block home 2012 In general, deductions for losses from passive activities only offset income from passive activities. H r block home 2012 You cannot use any excess deductions to offset other income. H r block home 2012 In addition, passive activity credits can only offset the tax on net passive income. H r block home 2012 Any excess loss or credits are carried over to later years. H r block home 2012 Suspended passive losses are fully deductible in the year you completely dispose of the activity. H r block home 2012 For more information, see Publication 925. H r block home 2012 Net operating loss. H r block home 2012   If your deductions are more than your income for the year, you may have a “net operating loss. H r block home 2012 ” You can use a net operating loss to lower your taxes in other years. H r block home 2012 See Publication 536 for more information. H r block home 2012   See Publication 542 for information about net operating losses of corporations. H r block home 2012 When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. H r block home 2012 An accounting method is a set of rules used to determine when and how income and expenses are reported. H r block home 2012 The two basic methods are the cash method and the accrual method. H r block home 2012 Whichever method you choose must clearly reflect income. H r block home 2012 For more information on accounting methods, see Publication 538. H r block home 2012 Cash method. H r block home 2012   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. H r block home 2012 Accrual method. H r block home 2012   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. H r block home 2012 The all-events test has been met. H r block home 2012 The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. H r block home 2012 Economic performance has occurred. H r block home 2012 Economic performance. H r block home 2012   You generally cannot deduct or capitalize a business expense until economic performance occurs. H r block home 2012 If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. H r block home 2012 If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. H r block home 2012 Example. H r block home 2012 Your tax year is the calendar year. H r block home 2012 In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. H r block home 2012 You paid it by check in January 2014. H r block home 2012 If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. H r block home 2012 If you use the cash method of accounting, deduct the expense on your 2014 return. H r block home 2012 Prepayment. H r block home 2012   You generally cannot deduct expenses in advance, even if you pay them in advance. H r block home 2012 This rule applies to both the cash and accrual methods. H r block home 2012 It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. H r block home 2012 Example. H r block home 2012 In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. H r block home 2012 Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. H r block home 2012 You can deduct the rent for 2014 and 2015 on your tax returns for those years. H r block home 2012 Contested liability. H r block home 2012   Under the cash method, you can deduct a contested liability only in the year you pay the liability. H r block home 2012 Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. H r block home 2012 S. H r block home 2012 possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. H r block home 2012 However, to take the deduction in the year of payment or transfer, you must meet certain conditions. H r block home 2012 See Regulations section 1. H r block home 2012 461-2. H r block home 2012 Related person. H r block home 2012   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. H r block home 2012 However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. H r block home 2012 Your deduction is allowed when the amount is includible in income by the related cash method payee. H r block home 2012 See Related Persons in Publication 538. H r block home 2012 Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. H r block home 2012 Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. H r block home 2012 The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. H r block home 2012 It does not apply to corporations other than S corporations. H r block home 2012 In determining whether you are carrying on an activity for profit, several factors are taken into account. H r block home 2012 No one factor alone is decisive. H r block home 2012 Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. H r block home 2012 Presumption of profit. H r block home 2012   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. H r block home 2012 Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. H r block home 2012 The activity must be substantially the same for each year within this period. H r block home 2012 You have a profit when the gross income from an activity exceeds the deductions. H r block home 2012   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. H r block home 2012   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. H r block home 2012 This means the limits discussed here will not apply. H r block home 2012 You can take all your business deductions from the activity, even for the years that you have a loss. H r block home 2012 You can rely on this presumption unless the IRS later shows it to be invalid. H r block home 2012 Using the presumption later. H r block home 2012   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. H r block home 2012   You can elect to do this by filing Form 5213. H r block home 2012 Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. H r block home 2012   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. H r block home 2012 Accordingly, it will not restrict your deductions. H r block home 2012 Rather, you will gain time to earn a profit in the required number of years. H r block home 2012 If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. H r block home 2012 If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. H r block home 2012   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. H r block home 2012 The period is extended only for deductions of the activity and any related deductions that might be affected. H r block home 2012    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. H r block home 2012 Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. H r block home 2012 Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. H r block home 2012 You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. H r block home 2012 However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. H r block home 2012 Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. H r block home 2012 If you are an individual, these deductions may be taken only if you itemize. H r block home 2012 These deductions may be taken on Schedule A (Form 1040). H r block home 2012 Category 1. H r block home 2012   Deductions you can take for personal as well as for business activities are allowed in full. H r block home 2012 For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. H r block home 2012 Deduct them on the appropriate lines of Schedule A (Form 1040). H r block home 2012 For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). H r block home 2012 The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. H r block home 2012 The reduction amount returns to $100 for tax years beginning after December 31, 2009. H r block home 2012 See Publication 547 for more information on casualty losses. H r block home 2012 For the limits that apply to home mortgage interest, see Publication 936. H r block home 2012 Category 2. H r block home 2012   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. H r block home 2012 Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. H r block home 2012 Category 3. H r block home 2012   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. H r block home 2012 Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. H r block home 2012 Where more than one asset is involved, allocate depreciation and these other deductions proportionally. H r block home 2012    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). H r block home 2012 They are subject to the 2%-of-adjusted-gross-income limit. H r block home 2012 See Publication 529 for information on this limit. H r block home 2012 Example. H r block home 2012 Adriana is engaged in a not-for-profit activity. H r block home 2012 The income and expenses of the activity are as follows. H r block home 2012 Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. H r block home 2012 The limit is reached in category (3), as follows. H r block home 2012 Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. H r block home 2012 $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. H r block home 2012 Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. H r block home 2012 The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). H r block home 2012 Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. H r block home 2012 Partnerships and S corporations. H r block home 2012   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. H r block home 2012 They are reflected in the individual shareholder's or partner's distributive shares. H r block home 2012 More than one activity. H r block home 2012   If you have several undertakings, each may be a separate activity or several undertakings may be combined. H r block home 2012 The following are the most significant facts and circumstances in making this determination. H r block home 2012 The degree of organizational and economic interrelationship of various undertakings. H r block home 2012 The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. H r block home 2012 The similarity of the undertakings. H r block home 2012   The IRS will generally accept your characterization if it is supported by facts and circumstances. H r block home 2012    If you are carrying on two or more different activities, keep the deductions and income from each one separate. H r block home 2012 Figure separately whether each is a not-for-profit activity. H r block home 2012 Then figure the limit on deductions and losses separately for each activity that is not for profit. H r block home 2012 Prev  Up  Next   Home   More Online Publications