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Instructions For 1040ez

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Instructions For 1040ez

Instructions for 1040ez 7. Instructions for 1040ez   Ship Passenger Tax Table of Contents A tax of $3 per passenger is imposed on certain ship voyages, as explained later under Taxable situations. Instructions for 1040ez The tax is imposed only once for each passenger, either at the time of first embarkation or disembarkation in the United States. Instructions for 1040ez The person providing the voyage (the operator of the vessel) is liable for the tax. Instructions for 1040ez Voyage. Instructions for 1040ez   A voyage is the vessel's journey that includes the outward and homeward trips or passages. Instructions for 1040ez The voyage starts when the vessel begins to load passengers and continues until the vessel has completed at least one outward and one homeward passage. Instructions for 1040ez The tax may be imposed even if a passenger does not make both an outward and a homeward passage as long as the voyage begins or ends in the United States. Instructions for 1040ez Passenger. Instructions for 1040ez   A passenger is an individual carried on the vessel other than the Master or a crew member or other individual engaged in the business of the vessel or its owners. Instructions for 1040ez Example 1. Instructions for 1040ez John Smith works as a guest lecturer. Instructions for 1040ez The cruise line hired him for the benefit of the passengers. Instructions for 1040ez Therefore, he is engaged in the business of the vessel and is not a passenger. Instructions for 1040ez Example 2. Instructions for 1040ez Marian Green is a travel agent. Instructions for 1040ez She is taking the cruise as a promotional trip to determine if she wants to offer it to her clients. Instructions for 1040ez She is a passenger. Instructions for 1040ez Taxable situations. Instructions for 1040ez   There are two taxable situations. Instructions for 1040ez The first situation involves voyages on commercial passenger vessels extending over one or more nights. Instructions for 1040ez A voyage extends over one or more nights if it extends for more than 24 hours. Instructions for 1040ez A passenger vessel is any vessel with stateroom or berth accommodations for more than 16 passengers. Instructions for 1040ez   The second situation involves voyages on a commercial vessel transporting passengers engaged in gambling on the vessel beyond the territorial waters of the United States. Instructions for 1040ez Territorial waters of the United States are those waters within the international boundary line between the United States and any contiguous foreign country or within 3 nautical miles (3. Instructions for 1040ez 45 statute miles) from low tide on the coastline. Instructions for 1040ez If passengers participate as players in any policy game or other lottery, or any other game of chance for money or other thing of value that the owner or operator of the vessel (or their employee, agent, or franchisee) conducts, sponsors, or operates, the voyage is subject to the ship passenger tax. Instructions for 1040ez The tax applies regardless of the duration of the voyage. Instructions for 1040ez A casual, friendly game of chance with other passengers that is not conducted, sponsored, or operated by the owner or operator is not gambling for determining if the voyage is subject to the ship passenger tax. Instructions for 1040ez Exemptions. Instructions for 1040ez   The tax does not apply when a vessel is on a voyage of less than 12 hours between 2 points in the United States or if a vessel is owned or operated by a state or local government. Instructions for 1040ez Prev  Up  Next   Home   More Online Publications
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The Instructions For 1040ez

Instructions for 1040ez 3. Instructions for 1040ez   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. Instructions for 1040ez Leveraged leases. Instructions for 1040ez Leveraged leases of limited-use property. Instructions for 1040ez Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. Instructions for 1040ez It also discusses how to treat other kinds of payments you make that are related to your use of this property. Instructions for 1040ez These include payments you make for taxes on the property. Instructions for 1040ez Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. Instructions for 1040ez In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. Instructions for 1040ez If you have or will receive equity in or title to the property, the rent is not deductible. Instructions for 1040ez Unreasonable rent. Instructions for 1040ez   You cannot take a rental deduction for unreasonable rent. Instructions for 1040ez Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Instructions for 1040ez Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Instructions for 1040ez Rent is not unreasonable just because it is figured as a percentage of gross sales. Instructions for 1040ez For examples of related persons, see Related persons in chapter 2, Publication 544. Instructions for 1040ez Rent on your home. Instructions for 1040ez   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Instructions for 1040ez You must meet the requirements for business use of your home. Instructions for 1040ez For more information, see Business use of your home in chapter 1. Instructions for 1040ez Rent paid in advance. Instructions for 1040ez   Generally, rent paid in your trade or business is deductible in the year paid or accrued. Instructions for 1040ez If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Instructions for 1040ez You can deduct the rest of your payment only over the period to which it applies. Instructions for 1040ez Example 1. Instructions for 1040ez You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. Instructions for 1040ez Your rent is $12,000 per year. Instructions for 1040ez You paid the first year's rent ($12,000) on June 30. Instructions for 1040ez You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. Instructions for 1040ez Example 2. Instructions for 1040ez You are a calendar year taxpayer. Instructions for 1040ez Last January you leased property for 3 years for $6,000 a year. Instructions for 1040ez You paid the full $18,000 (3 × $6,000) during the first year of the lease. Instructions for 1040ez Each year you can deduct only $6,000, the part of the lease that applies to that year. Instructions for 1040ez Canceling a lease. Instructions for 1040ez   You generally can deduct as rent an amount you pay to cancel a business lease. Instructions for 1040ez Lease or purchase. Instructions for 1040ez   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. Instructions for 1040ez You must first determine whether your agreement is a lease or a conditional sales contract. Instructions for 1040ez Payments made under a conditional sales contract are not deductible as rent expense. Instructions for 1040ez Conditional sales contract. Instructions for 1040ez   Whether an agreement is a conditional sales contract depends on the intent of the parties. Instructions for 1040ez Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Instructions for 1040ez No single test, or special combination of tests, always applies. Instructions for 1040ez However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Instructions for 1040ez The agreement applies part of each payment toward an equity interest you will receive. Instructions for 1040ez You get title to the property after you make a stated amount of required payments. Instructions for 1040ez The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Instructions for 1040ez You pay much more than the current fair rental value of the property. Instructions for 1040ez You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Instructions for 1040ez Determine this value when you make the agreement. Instructions for 1040ez You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Instructions for 1040ez The agreement designates part of the payments as interest, or that part is easy to recognize as interest. Instructions for 1040ez Leveraged leases. Instructions for 1040ez   Leveraged lease transactions may not be considered leases. Instructions for 1040ez Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. Instructions for 1040ez Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. Instructions for 1040ez   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. Instructions for 1040ez Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. Instructions for 1040ez Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. Instructions for 1040ez Internal Revenue Bulletin 2001-19 is available at www. Instructions for 1040ez irs. Instructions for 1040ez gov/pub/irs-irbs/irb01-19. Instructions for 1040ez pdf. Instructions for 1040ez   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. Instructions for 1040ez The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. Instructions for 1040ez The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. Instructions for 1040ez The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. Instructions for 1040ez The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. Instructions for 1040ez The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. Instructions for 1040ez   The IRS may charge you a user fee for issuing a tax ruling. Instructions for 1040ez For more information, see Revenue Procedure 2014-1 available at  www. Instructions for 1040ez irs. Instructions for 1040ez gov/irb/2014-1_IRB/ar05. Instructions for 1040ez html. Instructions for 1040ez Leveraged leases of limited-use property. Instructions for 1040ez   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. Instructions for 1040ez Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. Instructions for 1040ez See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. Instructions for 1040ez Leases over $250,000. Instructions for 1040ez   Special rules are provided for certain leases of tangible property. Instructions for 1040ez The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. Instructions for 1040ez Rents increase during the lease. Instructions for 1040ez Rents decrease during the lease. Instructions for 1040ez Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). Instructions for 1040ez Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). Instructions for 1040ez These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). Instructions for 1040ez   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. Instructions for 1040ez In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. Instructions for 1040ez For details, see section 467 of the Internal Revenue Code. Instructions for 1040ez Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. Instructions for 1040ez When you can deduct these taxes as additional rent depends on your accounting method. Instructions for 1040ez Cash method. Instructions for 1040ez   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. Instructions for 1040ez Accrual method. Instructions for 1040ez   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. Instructions for 1040ez That you have a liability for taxes on the leased property. Instructions for 1040ez How much the liability is. Instructions for 1040ez That economic performance occurred. Instructions for 1040ez   The liability and amount of taxes are determined by state or local law and the lease agreement. Instructions for 1040ez Economic performance occurs as you use the property. Instructions for 1040ez Example 1. Instructions for 1040ez Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. Instructions for 1040ez Oak leases land for use in its business. Instructions for 1040ez Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. Instructions for 1040ez However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. Instructions for 1040ez Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. Instructions for 1040ez If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. Instructions for 1040ez Oak cannot deduct the real estate taxes as rent until the tax bill is issued. Instructions for 1040ez This is when Oak's liability under the lease becomes fixed. Instructions for 1040ez Example 2. Instructions for 1040ez The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. Instructions for 1040ez As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. Instructions for 1040ez This is the year in which Oak's liability under the lease becomes fixed. Instructions for 1040ez Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. Instructions for 1040ez Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. Instructions for 1040ez If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. Instructions for 1040ez For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. Instructions for 1040ez The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. Instructions for 1040ez Option to renew. Instructions for 1040ez   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. Instructions for 1040ez However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). Instructions for 1040ez Allocate the lease cost to the original term and any option term based on the facts and circumstances. Instructions for 1040ez In some cases, it may be appropriate to make the allocation using a present value computation. Instructions for 1040ez For more information, see Regulations section 1. Instructions for 1040ez 178-1(b)(5). Instructions for 1040ez Example 1. Instructions for 1040ez You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. Instructions for 1040ez Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. Instructions for 1040ez Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. Instructions for 1040ez That is the remaining life of your present lease plus the periods for renewal. Instructions for 1040ez Example 2. Instructions for 1040ez The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. Instructions for 1040ez You can amortize the entire $10,000 over the 20-year remaining life of the original lease. Instructions for 1040ez The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). Instructions for 1040ez Cost of a modification agreement. Instructions for 1040ez   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. Instructions for 1040ez You must capitalize these payments and amortize them over the remaining period of the lease. Instructions for 1040ez You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. Instructions for 1040ez Example. Instructions for 1040ez You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. Instructions for 1040ez However, before you occupy it, you decide that you really need less space. Instructions for 1040ez The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. Instructions for 1040ez In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. Instructions for 1040ez   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. Instructions for 1040ez Your amortization deduction each year will be $150 ($3,000 ÷ 20). Instructions for 1040ez You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. Instructions for 1040ez Commissions, bonuses, and fees. Instructions for 1040ez   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. Instructions for 1040ez You must amortize these costs over the term of the lease. Instructions for 1040ez Loss on merchandise and fixtures. Instructions for 1040ez   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. Instructions for 1040ez You must capitalize the loss and amortize it over the remaining term of the lease. Instructions for 1040ez Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). Instructions for 1040ez Depreciate the property over its appropriate recovery period. Instructions for 1040ez You cannot amortize the cost over the remaining term of the lease. Instructions for 1040ez If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. Instructions for 1040ez For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. Instructions for 1040ez Assignment of a lease. Instructions for 1040ez   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. Instructions for 1040ez If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. Instructions for 1040ez The rest is for your investment in the permanent improvements. Instructions for 1040ez   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. Instructions for 1040ez You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. Instructions for 1040ez Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Instructions for 1040ez Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Instructions for 1040ez You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Instructions for 1040ez Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. Instructions for 1040ez Uniform capitalization rules. Instructions for 1040ez   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Instructions for 1040ez Produce real property or tangible personal property. Instructions for 1040ez For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Instructions for 1040ez Acquire property for resale. Instructions for 1040ez However, these rules do not apply to the following property. Instructions for 1040ez Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Instructions for 1040ez Property you produce if you meet either of the following conditions. Instructions for 1040ez Your indirect costs of producing the property are $200,000 or less. Instructions for 1040ez You use the cash method of accounting and do not account for inventories. Instructions for 1040ez Example 1. Instructions for 1040ez You rent construction equipment to build a storage facility. Instructions for 1040ez If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. Instructions for 1040ez You recover your cost by claiming a deduction for depreciation on the building. Instructions for 1040ez Example 2. Instructions for 1040ez You rent space in a facility to conduct your business of manufacturing tools. Instructions for 1040ez If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. Instructions for 1040ez More information. Instructions for 1040ez   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Instructions for 1040ez Prev  Up  Next   Home   More Online Publications