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Irs ProblemsIrs problems 11. Irs problems 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. Irs problems Kickbacks. Irs problems Form 1099-MISC. Irs problems Exception. Irs problems Tax preparation fees. Irs problems Covered executive branch official. Irs problems Exceptions to denial of deduction. Irs problems Indirect political contributions. Irs problems Type of deduction. Irs problems Repayment—$3,000 or less. Irs problems Repayment—over $3,000. Irs problems Method 1. Irs problems Method 2. Irs problems Repayment does not apply. Irs problems Year of deduction (or credit). Irs problems Telephone. Irs problems What's New Standard mileage rate. Irs problems Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. Irs problems 5 cents per mile. Irs problems For more information, see Car and truck expenses under Miscellaneous Expenses. Irs problems Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. Irs problems 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. Irs problems 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. Irs problems If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Irs problems 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. Irs problems Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. Irs problems For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Irs problems 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. Irs problems If the expenses are substantiated, you can deduct the allowable amount on your tax return. Irs problems 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. Irs problems For example, you can deduct 100% of the cost of meals on your business books and records. Irs problems However, only 50% of these costs are allowed by law as a tax deduction. Irs problems How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. Irs problems If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Irs problems 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. Irs problems 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. Irs problems See Table 11-1 , Reporting Reimbursements. Irs problems Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Irs problems 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. Irs problems An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. Irs problems The advance is reasonably calculated not to exceed the amount of anticipated expenses. Irs problems You make the advance within a reasonable period of time of your employee paying or incurring the expense. Irs problems 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. Irs problems Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Irs problems Adequate accounting. Irs problems Your employees must adequately account to you for their travel, meals, and entertainment expenses. Irs problems They must give you documentary evidence of their travel, mileage, and other employee business expenses. Irs problems 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. Irs problems Excess reimbursement or allowance. Irs problems 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. Irs problems The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Irs problems Reasonable period of time. Irs problems A reasonable period of time depends on the facts and circumstances. Irs problems 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. Irs problems You give an advance within 30 days of the time the employee pays or incurs the expense. Irs problems Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Irs problems Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Irs problems 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. Irs problems How to deduct. Irs problems You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. Irs problems Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Irs problems 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). Irs problems If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. Irs problems S. Irs problems Corporation Income Tax Return. Irs problems 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. Irs problems Table 11-1. Irs problems 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. Irs problems Actual expense reimbursement: Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Irs problems Per diem or mileage allowance up to the federal rate: Adequate accounting made and excess returned No amount. Irs problems 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. Irs problems The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Irs problems 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. Irs problems The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Irs problems 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. Irs problems No reimbursement plan The entire amount as wages in box 1. Irs problems Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. Irs problems 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. Irs problems Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Irs problems Federal rate. Irs problems The federal rate can be figured using any one of the following methods. Irs problems For car expenses: The standard mileage rate. Irs problems A fixed and variable rate (FAVR). Irs problems For per diem amounts: The regular federal per diem rate. Irs problems The standard meal allowance. Irs problems The high-low rate. Irs problems Car allowance. Irs problems Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Irs problems Beginning in 2013, the standard business mileage rate is 56. Irs problems 5 cents per mile. Irs problems You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Irs problems 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. Irs problems ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Irs problems ). Irs problems For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Irs problems irs. Irs problems gov/irb/2010-51_IRB/ar14. Irs problems html and Notice 2012-72, available at www. Irs problems irs. Irs problems gov/irb/2012-50_IRB/ar10. Irs problems html. Irs problems Per diem allowance. Irs problems 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. Irs problems Regular federal per diem rate. Irs problems The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. Irs problems It has two components: Lodging expense, and Meal and incidental expense (M&IE). Irs problems The rates are different for different locations. Irs problems Publication 1542 lists the rates in the continental United States. Irs problems Standard meal allowance. Irs problems The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Irs problems 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). Irs problems Internet access. Irs problems Per diem rates are available on the Internet. Irs problems You can access per diem rates at www. Irs problems gsa. Irs problems gov/perdiemrates. Irs problems High-low method. Irs problems This is a simplified method of computing the federal per diem rate for travel within the continental United States. Irs problems It eliminates the need to keep a current list of the per diem rate for each city. Irs problems 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. Irs problems All other areas have a per diem amount of $163 ($52 for M&IE). Irs problems The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Irs problems Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Irs problems The rate for all other locations increased to $170 ($52 for M&IE). Irs problems 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. Irs problems However, you must use the same rate for all employees reimbursed under the high-low method. Irs problems For more information about the high-low method, see Notice 2013-65, available at www. Irs problems irs. Irs problems gov/irb/2013-44_IRB/ar13. Irs problems html. Irs problems See Publication 1542 (available on the Internet at IRS. Irs problems gov) for the current per diem rates for all locations. Irs problems Reporting per diem and car allowances. Irs problems The following discussion explains how to report per diem and car allowances. Irs problems The manner in which you report them depends on how the allowance compares to the federal rate. Irs problems See Table 11-1. Irs problems Allowance less than or equal to the federal rate. Irs problems 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. Irs problems Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Irs problems See How to deduct under Accountable Plans, earlier. Irs problems Allowance more than the federal rate. Irs problems If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Irs problems Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Irs problems Deduct it as travel expenses (as explained above). Irs problems This part of the allowance is treated as reimbursed under an accountable plan. Irs problems 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. Irs problems Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Irs problems This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Irs problems 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. Irs problems The deduction limit applies even if you reimburse them for 100% of the expenses. Irs problems Application of the 50% limit. Irs problems 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. Irs problems It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Irs problems The deduction limit may also apply to meals you furnish on your premises to your employees. Irs problems Related expenses. Irs problems 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. Irs problems 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. Irs problems 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. Irs problems Amount subject to 50% limit. Irs problems 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. Irs problems The per diem allowance. Irs problems The federal rate for M&IE. Irs problems 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. Irs problems 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. Irs problems Meal expenses when subject to “hours of service” limits. Irs problems 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. Irs problems See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Irs problems De minimis (minimal) fringe benefit. Irs problems 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. Irs problems See Publication 15-B for additional information on de minimis fringe benefits. Irs problems Company cafeteria or executive dining room. Irs problems The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Irs problems This includes the cost of maintaining the facilities for providing the food and beverages. Irs problems 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). Irs problems Employee activities. Irs problems 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. Irs problems The benefit must be primarily for your employees who are not highly compensated. Irs problems For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Irs problems Owned a 10% or more interest in the business during the year or the preceding year. Irs problems An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Irs problems Received more than $115,000 in pay for the preceding year. Irs problems You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. Irs problems For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Irs problems Meals or entertainment treated as compensation. Irs problems The 50% limit does not apply to either of the following. Irs problems 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. Irs problems 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. Irs problems Sales of meals or entertainment. Irs problems You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Irs problems 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. Irs problems The 50% limit does not apply to this expense. Irs problems Providing meals or entertainment to general public to promote goodwill. Irs problems 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. Irs problems The 50% limit does not apply to this expense. Irs problems Director, stockholder, or employee meetings. Irs problems You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Irs problems You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Irs problems These expenses are subject to the 50% limit. Irs problems Trade association meetings. Irs problems You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Irs problems These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Irs problems Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Irs problems All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Irs problems The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Irs problems You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. Irs problems Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Irs problems Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Irs problems Advertising expenses. Irs problems You generally can deduct reasonable advertising expenses that are directly related to your business activities. Irs problems Generally, you cannot deduct amounts paid to influence legislation (i. Irs problems e. Irs problems , lobbying). Irs problems See Lobbying expenses , later. Irs problems 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. Irs problems For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Irs problems S. Irs problems Savings Bonds, or to participate in similar causes is usually deductible. Irs problems Anticipated liabilities. Irs problems Anticipated liabilities or reserves for anticipated liabilities are not deductible. Irs problems For example, assume you sold 1-year TV service contracts this year totaling $50,000. Irs problems From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Irs problems You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Irs problems You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Irs problems Bribes and kickbacks. Irs problems Engaging in the payment of bribes or kickbacks is a serious criminal matter. Irs problems Such activity could result in criminal prosecution. Irs problems 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. Irs problems 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. Irs problems Meaning of “generally enforced. Irs problems ” 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. Irs problems For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. Irs problems Kickbacks. Irs problems A kickback is a payment for referring a client, patient, or customer. Irs problems 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. Irs problems 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. Irs problems For example, the Yard Corporation is in the business of repairing ships. Irs problems It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Irs problems 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. Irs problems These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Irs problems Form 1099-MISC. Irs problems It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. Irs problems See Form 1099-MISC for more information. Irs problems Car and truck expenses. Irs problems The costs of operating a car, truck, or other vehicle in your business are deductible. Irs problems For more information on how to figure your deduction, see Publication 463. Irs problems Charitable contributions. Irs problems 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. Irs problems If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Irs problems However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Irs problems See the Instructions for Form 1120 for more information. Irs problems 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). Irs problems Example. Irs problems You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Irs problems The purpose of the ad was to encourage readers to buy your products. Irs problems Your payment is not a charitable contribution. Irs problems You can deduct it as an advertising expense. Irs problems Example. Irs problems 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. Irs problems Your payment is not a charitable contribution. Irs problems You can deduct it as a business expense. Irs problems See Publication 526 for a discussion of donated inventory, including capital gain property. Irs problems Club dues and membership fees. Irs problems Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. Irs problems 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. Irs problems Exception. Irs problems 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. Irs problems Boards of trade. Irs problems Business leagues. Irs problems Chambers of commerce. Irs problems Civic or public service organizations. Irs problems Professional organizations such as bar associations and medical associations. Irs problems Real estate boards. Irs problems Trade associations. Irs problems Credit card convenience fees. Irs problems Credit card companies charge a fee to businesses who accept their cards. Irs problems This fee when paid or incurred by the business can be deducted as a business expense. Irs problems Damages recovered. Irs problems 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. Irs problems You must include this compensation in your income. Irs problems However, you may be able to take a special deduction. Irs problems The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Irs problems The deduction is the smaller of the following. Irs problems 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. Irs problems Your losses from the injury you have not deducted. Irs problems Demolition expenses or losses. Irs problems Amounts paid or incurred to demolish a structure are not deductible. Irs problems These amounts are added to the basis of the land where the demolished structure was located. Irs problems Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Irs problems Education expenses. Irs problems Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Irs problems See Education Expenses in chapter 2. Irs problems You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Irs problems 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. Irs problems 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. Irs problems 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. Irs problems This is true even if the education maintains or improves skills presently required in your business. Irs problems For more information on education expenses, see Publication 970. Irs problems Franchise, trademark, trade name. Irs problems 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). Irs problems 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. Irs problems 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. Irs problems Impairment-related expenses. Irs problems 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. Irs problems You are disabled if you have either of the following. Irs problems A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Irs problems A physical or mental impairment that substantially limits one or more of your major life activities. Irs problems The expense qualifies as a business expense if all the following apply. Irs problems Your work clearly requires the expense for you to satisfactorily perform that work. Irs problems The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Irs problems Their treatment is not specifically provided for under other tax law provisions. Irs problems Example. Irs problems You are blind. Irs problems You must use a reader to do your work, both at and away from your place of work. Irs problems The reader's services are only for your work. Irs problems You can deduct your expenses for the reader as a business expense. Irs problems Internet-related expenses. Irs problems Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Irs problems If you are starting a business you may have to amortize these expenses as start-up costs. Irs problems For more information about amortizing start-up and organizational costs, see chapter 8. Irs problems Interview expense allowances. Irs problems Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Irs problems You can deduct the reimbursements as a business expense. Irs problems However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Irs problems Legal and professional fees. Irs problems Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. Irs problems However, usually legal fees you pay to acquire business assets are not deductible. Irs problems These costs are added to the basis of the property. Irs problems 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. Irs problems 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. Irs problems The result is the portion of the invoice attributable to business expenses. Irs problems The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Irs problems Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Irs problems However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Irs problems See Publication 529, Miscellaneous Deductions. Irs problems Tax preparation fees. Irs problems The cost of hiring a tax professional, such as a C. Irs problems P. Irs problems A. Irs problems , 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. Irs problems Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Irs problems 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. Irs problems Licenses and regulatory fees. Irs problems Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Irs problems Some licenses and fees may have to be amortized. Irs problems See chapter 8 for more information. Irs problems Lobbying expenses. Irs problems Generally, lobbying expenses are not deductible. Irs problems Lobbying expenses include amounts paid or incurred for any of the following activities. Irs problems Influencing legislation. Irs problems Participating in or intervening in any political campaign for, or against, any candidate for public office. Irs problems Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Irs problems Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Irs problems Researching, preparing, planning, or coordinating any of the preceding activities. Irs problems 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. Irs problems For information on making this allocation, see section 1. Irs problems 162-28 of the regulations. Irs problems You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Irs problems The organization conducts lobbying activities on matters of direct financial interest to your business. Irs problems A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Irs problems 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. Irs problems Covered executive branch official. Irs problems For purposes of this discussion, a covered executive branch official is any of the following. Irs problems The President. Irs problems The Vice President. Irs problems 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. Irs problems 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). Irs problems Exceptions to denial of deduction. Irs problems The general denial of the deduction does not apply to the following. Irs problems 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. Irs problems An Indian tribal government is treated as a local council or similar governing body. Irs problems 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). Irs problems 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). Irs problems Moving machinery. Irs problems Generally, the cost of moving machinery from one city to another is a deductible expense. Irs problems So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Irs problems You can deduct the cost of installing the machinery in the new location. Irs problems However, you must capitalize the costs of installing or moving newly purchased machinery. Irs problems Outplacement services. Irs problems 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. Irs problems are deductible. Irs problems The costs of outplacement services may cover more than one deduction category. Irs problems 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. Irs problems For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Irs problems Penalties and fines. Irs problems Penalties paid for late performance or nonperformance of a contract are generally deductible. Irs problems For instance, you own and operate a construction company. Irs problems Under a contract, you are to finish construction of a building by a certain date. Irs problems Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Irs problems You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. Irs problems These additional costs are deductible business expenses. Irs problems On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. Irs problems These fines or penalties include the following amounts. Irs problems Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Irs problems 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. Irs problems Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Irs problems Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Irs problems Examples of nondeductible penalties and fines include the following. Irs problems Fines for violating city housing codes. Irs problems Fines paid by truckers for violating state maximum highway weight laws. Irs problems Fines for violating air quality laws. Irs problems Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Irs problems A fine or penalty does not include any of the following. Irs problems 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. Irs problems Court costs or stenographic and printing charges. Irs problems Compensatory damages paid to a government. Irs problems Political contributions. Irs problems Contributions or gifts paid to political parties or candidates are not deductible. Irs problems In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Irs problems Indirect political contributions. Irs problems You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Irs problems Examples of nondeductible expenses include the following. Irs problems 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. Irs problems 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. Irs problems Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Irs problems Repairs. Irs problems The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Irs problems 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. Irs problems Otherwise, the cost must be capitalized and depreciated. Irs problems See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Irs problems The cost of repairs includes the costs of labor, supplies, and certain other items. Irs problems The value of your own labor is not deductible. Irs problems 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). Irs problems Repayments. Irs problems 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. Irs problems 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. Irs problems Type of deduction. Irs problems The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Irs problems For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. Irs problems 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). Irs problems 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. Irs problems 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. Irs problems Repayment—$3,000 or less. Irs problems If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Irs problems Repayment—over $3,000. Irs problems If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Irs problems 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. Irs problems ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Irs problems If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Irs problems Method 1. Irs problems Figure your tax for 2013 claiming a deduction for the repaid amount. Irs problems Method 2. Irs problems Figure your tax for 2013 claiming a credit for the repaid amount. Irs problems Follow these steps. Irs problems Figure your tax for 2013 without deducting the repaid amount. Irs problems Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Irs problems Subtract the tax in (2) from the tax shown on your return for the earlier year. Irs problems This is the amount of your credit. Irs problems Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Irs problems If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Irs problems If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Irs problems R. Irs problems C. Irs problems 1341” next to line 71. Irs problems Example. Irs problems For 2012, you filed a return and reported your income on the cash method. Irs problems In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Irs problems Your filing status in 2013 and 2012 is single. Irs problems 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. Irs problems 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. Irs problems Repayment does not apply. Irs problems This discussion does not apply to the following. Irs problems Deductions for bad debts. Irs problems Deductions from sales to customers, such as returns and allowances, and similar items. Irs problems Deductions for legal and other expenses of contesting the repayment. Irs problems Year of deduction (or credit). Irs problems 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. Irs problems 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. Irs problems 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. Irs problems Subscriptions. Irs problems Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Irs problems Supplies and materials. Irs problems 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. Irs problems 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. Irs problems You do not keep a record of when they are used. Irs problems You do not take an inventory of the amount on hand at the beginning and end of the tax year. Irs problems This method does not distort your income. Irs problems You can also deduct the cost of books, professional instruments, equipment, etc. Irs problems , if you normally use them within a year. Irs problems 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. Irs problems For more information regarding depreciation see Publication 946, How To Depreciate Property. Irs problems Utilities. Irs problems Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Irs problems However, any part due to personal use is not deductible. Irs problems Telephone. Irs problems 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. Irs problems 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. Irs problems Prev Up Next Home More Online Publications
State and Local Consumer Agencies in Maryland
Consumer Protection Offices
City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.
State Consumer Protection Offices
Maryland Office of the Attorney General
Maryland Office of the Attorney General
Consumer Protection Division
200 Saint Paul Pl.
Baltimore, MD 21202
Phone Number: 410-528-8662 (Consumer Mediation) 410-576-6550 (Consumer Information) 410-528-1840 (Medical billing complaints)
Toll-free: 1-888-743-0023 (Switchboard) 1-877-261-8807 (Health plan decision appeals)
TTY: 410-576-6372 (MD)
Regional Consumer Protection Offices
Maryland Attorney General's Office - Eastern Shore
Maryland Attorney General's Office - Eastern Shore
Consumer Protection Division
201 Baptist St.
Salisbury, MD 21801-4976
Phone Number: 410-713-3620
Toll-free: 1-888-743-0023 (Baltimore office)
Maryland Attorney General's Office - Southern Maryland
Maryland Attorney General's Office - Southern Maryland
15045 Burnt Store Rd.
Hughesville, MD 20637
Phone Number: 301-274-4620
TTY: 410-576-6372 (Baltimore office)
Maryland Attorney General's Office - Western Maryland
Maryland Attorney General's Office - Western Maryland
Consumer Protection Division
44 N. Potomac St., Suite 104
Hagerstown, MD 21740
Phone Number: 301-791-4780
TTY: 410-576-6372 (Baltimore office)
County Consumer Protection Offices
Montgomery County Office of Consumer Protection
The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.
Department of Labor, Licensing and Regulation
Department of Labor, Licensing and Regulation
Commissioner of Financial Regulation
500 N. Calvert St., Suite 402
Baltimore, MD 21202
Phone Number: 410-230-6077 (Consumer Services)
Toll-free: 1-888-784-0136 (MD)
Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.
Website: Insurance Administration
200 St. Paul Pl.
Baltimore, MD 21202
Phone Number: 410-468-2000
Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.
State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.
Public Service Commission
Website: Public Service Commission
Public Service Commission
Six St. Paul St., 16th Floor
Baltimore, MD 21202-6806
Phone Number: 410-767-8028