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Income Tax Deductions 2012

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Income Tax Deductions 2012

Income tax deductions 2012 5. Income tax deductions 2012   Figuring Your Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tax Year Identification NumberF-1 and M-1 visa holders. Income tax deductions 2012 J-1 visa holders. Income tax deductions 2012 Filing StatusResident Aliens Nonresident Aliens Reporting Your Income DeductionsResident Aliens Nonresident Aliens ExemptionsResident Aliens Nonresident Aliens Itemized DeductionsResident Aliens Nonresident Aliens Tax Credits and PaymentsResident Aliens Nonresident Aliens Bona Fide Residents of American Samoa or Puerto Rico Introduction After you have determined your alien status, the source of your income, and if and how that income is taxed in the United States, your next step is to figure your tax. Income tax deductions 2012 The information in this chapter is not as comprehensive for resident aliens as it is for nonresident aliens. Income tax deductions 2012 Resident aliens should get publications, forms, and instructions for U. Income tax deductions 2012 S. Income tax deductions 2012 citizens, because the information for filing returns for resident aliens is generally the same as for U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 If you are both a nonresident alien and a resident alien in the same tax year, see chapter 6 for a discussion of dual-status aliens. Income tax deductions 2012 Topics - This chapter discusses: Identification numbers, Filing status, Deductions, Exemptions, Tax credits and payments, and Special rules for bona fide residents of American Samoa and Puerto Rico. Income tax deductions 2012 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 501 Exemptions, Standard Deduction, and Filing Information 521 Moving Expenses 526 Charitable Contributions 535 Business Expenses 597 Information on the United States–Canada Income Tax Treaty Form (and Instructions) W-7 Application for IRS Individual Taxpayer Identification Number 1040 U. Income tax deductions 2012 S. Income tax deductions 2012 Individual Income Tax Return 1040NR U. Income tax deductions 2012 S. Income tax deductions 2012 Nonresident Alien Income Tax Return 1040NR-EZ U. Income tax deductions 2012 S. Income tax deductions 2012 Income Tax Return for Certain Nonresident Aliens With No Dependents 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3903 Moving Expenses 4563 Exclusion of Income for Bona Fide Residents of American Samoa 8959 Additional Medicare Tax See chapter 12 for information about getting these publications and forms. Income tax deductions 2012 Tax Year You must figure your income and file a tax return on the basis of an annual accounting period called a tax year. Income tax deductions 2012 If you have not previously established a fiscal tax year, your tax year is the calendar year. Income tax deductions 2012 A calendar year is 12 consecutive months ending on December 31. Income tax deductions 2012 If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December or a 52–53 week year) and are considered to be a U. Income tax deductions 2012 S. Income tax deductions 2012 resident for any calendar year, you will be treated as a U. Income tax deductions 2012 S. Income tax deductions 2012 resident for any part of your fiscal year that falls within that calendar year. Income tax deductions 2012 Identification Number A taxpayer identification number must be furnished on returns, statements, and other tax-related documents. Income tax deductions 2012 For an individual, this is a social security number (SSN). Income tax deductions 2012 If you do not have and are not eligible to get an SSN, you must apply for an individual taxpayer identification number (ITIN). Income tax deductions 2012 An employer identification number (EIN) is required if you are engaged in a trade or business as a sole proprietor and have employees or a qualified retirement plan. Income tax deductions 2012 You must furnish a taxpayer identification number if you are: An alien who has income effectively connected with the conduct of a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business at any time during the year, An alien who has a U. Income tax deductions 2012 S. Income tax deductions 2012 office or place of business at any time during the year, A nonresident alien spouse treated as a resident, as discussed in chapter 1, or Any other alien who files a tax return, an amended return, or a refund claim (but not information returns). Income tax deductions 2012 Social security number (SSN). Income tax deductions 2012   Generally, you can get an SSN if you have been lawfully admitted to the United States for permanent residence or under other immigration categories that authorize U. Income tax deductions 2012 S. Income tax deductions 2012 employment. Income tax deductions 2012   To apply for this number, get Form SS-5, Application for a Social Security Card, from your local Social Security Administration (SSA) office or call the SSA at 1-800-772-1213. Income tax deductions 2012 You can also download Form SS-5 from the SSA's website at www. Income tax deductions 2012 socialsecurity. Income tax deductions 2012 gov/ssnumber/ss5. Income tax deductions 2012 htm. Income tax deductions 2012 You must visit an SSA office in person and submit your Form SS-5 along with original documentation showing your age, identity, immigration status, and authority to work in the United States. Income tax deductions 2012 Generally, you will receive your card about 2 weeks after the SSA has all of the necessary information. Income tax deductions 2012 F-1 and M-1 visa holders. Income tax deductions 2012    If you are an F-1 or M-1 student, you must also show your Form I-20. Income tax deductions 2012 For more information, see SSA Publication 05-10181, International Students and Social Security Numbers, available online at www. Income tax deductions 2012 socialsecurity. Income tax deductions 2012 gov/pubs/10181. Income tax deductions 2012 html. Income tax deductions 2012 J-1 visa holders. Income tax deductions 2012   If you are a J-1 exchange visitor, you will also need to show your Form DS-2019. Income tax deductions 2012 For more information, see SSA Publication 05-10107, Foreign Workers and Social Security Numbers, available online at www. Income tax deductions 2012 socialsecurity. Income tax deductions 2012 gov/pubs/10107. Income tax deductions 2012 html. Income tax deductions 2012 Individual taxpayer identification number (ITIN). Income tax deductions 2012   If you do not have and are not eligible to get an SSN, you must apply for an ITIN. Income tax deductions 2012 For details on how to do so, see Form W-7 and its instructions. Income tax deductions 2012 Allow 6 to 10 weeks for the IRS to notify you of your ITIN. Income tax deductions 2012 If you already have an ITIN, enter it wherever an SSN is required on your tax return. Income tax deductions 2012   An ITIN is for tax use only. Income tax deductions 2012 It does not entitle you to social security benefits or change your employment or immigration status under U. Income tax deductions 2012 S. Income tax deductions 2012 law. Income tax deductions 2012   In addition to those aliens who are required to furnish a taxpayer identification number and are not eligible for an SSN, a Form W-7 must be filed for: Alien individuals who are claimed as dependents and are not eligible for an SSN, and Alien spouses who are claimed as exemptions and are not eligible for an SSN. Income tax deductions 2012 Employer identification number (EIN). Income tax deductions 2012   An individual may use an SSN (or ITIN) for individual taxes and an EIN for business taxes. Income tax deductions 2012 To apply for an EIN, file Form SS-4, Application for Employer Identification Number, with the IRS. Income tax deductions 2012 Filing Status The amount of your tax depends on your filing status. Income tax deductions 2012 Your filing status is important in determining whether you can take certain deductions and credits. Income tax deductions 2012 The rules for determining your filing status are different for resident aliens and nonresident aliens. Income tax deductions 2012 Resident Aliens Resident aliens can use the same filing statuses available to U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 See your form instructions or Publication 501 for more information on filing status. Income tax deductions 2012 Married filing jointly. Income tax deductions 2012   Generally, you can file as married filing jointly only if both you and your spouse were resident aliens for the entire tax year, or if you make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. Income tax deductions 2012 Qualifying widow(er). Income tax deductions 2012   If your spouse died in 2011 or 2012, you did not remarry before the end of 2013, and you have a dependent child living with you, you may qualify to file as a qualifying widow(er) and use the joint return tax rates. Income tax deductions 2012 This applies only if you could have filed a joint return with your spouse for the year your spouse died. Income tax deductions 2012 Head of household. Income tax deductions 2012   You can qualify as head of household if you are unmarried or considered unmarried on the last day of the year and you pay more than half the cost of keeping up a home for you and a qualifying person. Income tax deductions 2012 You must be a resident alien for the entire tax year. Income tax deductions 2012   You are considered unmarried for this purpose if your spouse was a nonresident alien at any time during the year and you do not make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. Income tax deductions 2012 Note. Income tax deductions 2012   Even if you are considered unmarried for head of household purposes because you are married to a nonresident alien, you may still be considered married for purposes of the earned income credit. Income tax deductions 2012 In that case, you will not be entitled to the credit. Income tax deductions 2012 See Publication 596 for more information. Income tax deductions 2012 Nonresident Aliens If you are a nonresident alien filing Form 1040NR, you may be able to use one of the filing statuses discussed later. Income tax deductions 2012 If you are filing Form 1040NR-EZ, you can only claim “Single nonresident alien” or “Married nonresident alien” as your filing status. Income tax deductions 2012 Married nonresident alien. Income tax deductions 2012   Married nonresident aliens who are not married to U. Income tax deductions 2012 S. Income tax deductions 2012 citizens or residents generally must use the Tax Table column or the Tax Computation Worksheet for married filing separate returns when determining the tax on income effectively connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 Exceptions. Income tax deductions 2012   Married nonresident aliens normally cannot use the Tax Table column or the Tax Computation Worksheet for single individuals. Income tax deductions 2012 However, you may be able to file as single if you lived apart from your spouse during the last 6 months of the year and you are a married resident of Canada, Mexico, South Korea, or are a married U. Income tax deductions 2012 S. Income tax deductions 2012 national. Income tax deductions 2012 See the instructions for Form 1040NR or Form 1040NR-EZ to see if you qualify. Income tax deductions 2012 U. Income tax deductions 2012 S. Income tax deductions 2012 national is defined later in this section under Qualifying widow(er) . Income tax deductions 2012   A nonresident alien generally cannot file as married filing jointly. Income tax deductions 2012 However, a nonresident alien who is married to a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or resident can choose to be treated as a resident and file a joint return on Form 1040, Form 1040A, or Form 1040EZ. Income tax deductions 2012 For information on these choices, see chapter 1. Income tax deductions 2012 If you do not make the choice to file jointly, file Form 1040NR or Form 1040NR-EZ and use the Tax Table column or the Tax Computation Worksheet for married individuals filing separately. Income tax deductions 2012 Qualifying widow(er). Income tax deductions 2012   You may be eligible to file as a qualifying widow(er) and use the joint return tax rates if all of the following conditions apply. Income tax deductions 2012 You were a resident of Canada, Mexico, or South Korea, or a U. Income tax deductions 2012 S. Income tax deductions 2012 national (defined later). Income tax deductions 2012 Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Income tax deductions 2012 You have a dependent child living with you. Income tax deductions 2012 See the instructions for Form 1040NR for the rules for filing as a qualifying widow(er) with a dependent child. Income tax deductions 2012   A U. Income tax deductions 2012 S. Income tax deductions 2012 national is an individual who, although not a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen, owes his or her allegiance to the United States. Income tax deductions 2012 U. Income tax deductions 2012 S. Income tax deductions 2012 nationals include American Samoans and Northern Mariana Islanders who chose to become U. Income tax deductions 2012 S. Income tax deductions 2012 nationals instead of U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 Head of household. Income tax deductions 2012   You cannot file as head of household if you are a nonresident alien at any time during the tax year. Income tax deductions 2012 However, if you are married, your spouse can qualify as a head of household if: Your spouse is a resident alien or U. Income tax deductions 2012 S. Income tax deductions 2012 citizen for the entire tax year, You do not choose to be treated as a resident alien, and Your spouse meets the other requirements for this filing status, as discussed earlier under Resident Aliens . Income tax deductions 2012 Note. Income tax deductions 2012   Even if your spouse is considered unmarried for head of household purposes because you are a nonresident alien, your spouse may still be considered married for purposes of the earned income credit. Income tax deductions 2012 In that case, your spouse will not be entitled to the credit. Income tax deductions 2012 See Publication 596 for more information. Income tax deductions 2012 Estates and trusts. Income tax deductions 2012   A nonresident alien estate or trust using Form 1040NR must use Tax Rate Schedule W in the Form 1040NR instructions when determining the tax on income effectively connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 Special rules for aliens from certain U. Income tax deductions 2012 S. Income tax deductions 2012 possessions. Income tax deductions 2012   A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year and who is temporarily working in the United States should read Bona Fide Residents of American Samoa or Puerto Rico, at the end of this chapter, for information about special rules. Income tax deductions 2012 Reporting Your Income You must report each item of income that is taxable according to the rules in chapters 2, 3, and 4. Income tax deductions 2012 For resident aliens, this includes income from sources both within and outside the United States. Income tax deductions 2012 For nonresident aliens, this includes both income that is effectively connected with a trade or business in the United States (subject to graduated tax rates) and income from U. Income tax deductions 2012 S. Income tax deductions 2012 sources that is not effectively connected (subject to a flat 30% tax rate or lower tax treaty rate). Income tax deductions 2012 Deductions Resident and nonresident aliens can claim similar deductions on their U. Income tax deductions 2012 S. Income tax deductions 2012 tax returns. Income tax deductions 2012 However, nonresident aliens generally can claim only deductions related to income that is effectively connected with their U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 Resident Aliens You can claim the same deductions allowed to U. Income tax deductions 2012 S. Income tax deductions 2012 citizens if you are a resident alien for the entire tax year. Income tax deductions 2012 While the discussion that follows contains some of the same general rules and guidelines that apply to you, it is specifically directed toward nonresident aliens. Income tax deductions 2012 You should get Form 1040 and instructions for more information on how to claim your allowable deductions. Income tax deductions 2012 Nonresident Aliens You can claim deductions to figure your effectively connected taxable income. Income tax deductions 2012 You generally cannot claim deductions related to income that is not connected with your U. Income tax deductions 2012 S. Income tax deductions 2012 business activities. Income tax deductions 2012 Except for personal exemptions, and certain itemized deductions, discussed later, you can claim deductions only to the extent they are connected with your effectively connected income. Income tax deductions 2012 Ordinary and necessary business expenses. Income tax deductions 2012   You can deduct all ordinary and necessary expenses in the operation of your U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business to the extent they relate to income effectively connected with that trade or business. Income tax deductions 2012 The deduction for travel expenses while in the United States is discussed under Itemized Deductions, later. Income tax deductions 2012 For information about other business expenses, see Publication 535. Income tax deductions 2012 Losses. Income tax deductions 2012   You can deduct losses resulting from transactions that you entered into for profit and that you were not reimbursed for by insurance, etc. Income tax deductions 2012 to the extent that they relate to income that is effectively connected with a trade or business in the United States. Income tax deductions 2012 Educator expenses. Income tax deductions 2012   If you were an eligible educator in 2013, you can deduct as an adjustment to income up to $250 in unreimbursed qualified expenses you paid or incurred during 2013 for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment, and other equipment and materials used in the classroom. Income tax deductions 2012 For more information, see your tax form instructions. Income tax deductions 2012 Individual retirement arrangement (IRA). Income tax deductions 2012   If you made contributions to a traditional IRA for 2013, you may be able to take an IRA deduction. Income tax deductions 2012 But you must have taxable compensation effectively connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business to do so. Income tax deductions 2012 A Form 5498 should be sent to you by May 31, 2014, that shows all contributions to your traditional IRA for 2013. Income tax deductions 2012 If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, SEP, SIMPLE, etc. Income tax deductions 2012 ) at work or through self-employment, your IRA deduction may be reduced or eliminated. Income tax deductions 2012 But you can still make contributions to a traditional IRA even if you cannot deduct them. Income tax deductions 2012 If you made nondeductible contributions to a traditional IRA for 2013, you must report them on Form 8606, Nondeductible IRAs. Income tax deductions 2012   For more information, see Publication 590, Individual Retirement Arrangements (IRAs). Income tax deductions 2012 Moving expenses. Income tax deductions 2012   If you are a nonresident alien temporarily in the United States earning taxable income for performing personal services, you can deduct moving expenses to the United States if you meet both of the following tests. Income tax deductions 2012 You are a full-time employee for at least 39 weeks during the 12 months right after you move, or if you are self-employed, you work full time for at least 39 weeks during the first 12 months and 78 weeks during the first 24 months right after you move. Income tax deductions 2012 Your new job location is at least 50 miles farther (by the shortest commonly traveled route) from your former home than your former job location was. Income tax deductions 2012 If you had no former job location, the new job location must be at least 50 miles from your former home. Income tax deductions 2012   You cannot deduct the moving expense you have when returning to your home abroad or moving to a foreign job site. Income tax deductions 2012   Figure your deductible moving expenses to the United States on Form 3903, and deduct them on line 26 of Form 1040NR. Income tax deductions 2012   For more information on the moving expense deduction, see Publication 521. Income tax deductions 2012 Reimbursements. Income tax deductions 2012   If your employer reimbursed you for allowable moving expenses under an accountable plan, your employer should have excluded these reimbursements from your income. Income tax deductions 2012 You can only deduct allowable moving expenses that were not reimbursed by your employer or that were reimbursed but the reimbursement was included in your income. Income tax deductions 2012 For more information, see Publication 521. Income tax deductions 2012 Moving expense or travel expense. Income tax deductions 2012   If you deduct moving expenses to the United States, you cannot also deduct travel expenses (discussed later under Itemized Deductions) while temporarily away from your tax home in a foreign country. Income tax deductions 2012 Moving expenses are based on a change in your principal place of business while travel expenses are based on your temporary absence from your principal place of business. Income tax deductions 2012 Self-employed SEP, SIMPLE, and qualified retirement plans. Income tax deductions 2012   If you are self-employed, you may be able to deduct contributions to a SEP, SIMPLE, or qualified retirement plan that provides retirement benefits for yourself and your common-law employees, if any. Income tax deductions 2012 To make deductible contributions for yourself, you must have net earnings from self-employment that are effectively connected with your U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012   Get Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), for further information. Income tax deductions 2012 Penalty on early withdrawal of savings. Income tax deductions 2012   You must include in income all effectively connected interest income you receive or that is credited to your account during the year. Income tax deductions 2012 Do not reduce it by any penalty you must pay on an early withdrawal from a time savings account. Income tax deductions 2012 However, if the interest income is effectively connected with your U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business during the year, you can deduct on line 30 of Form 1040NR the amount of the early withdrawal penalty that the banking institution charged. Income tax deductions 2012 Student loan interest expense. Income tax deductions 2012   If you paid interest on a student loan in 2013, you may be able to deduct up to $2,500 of the interest you paid. Income tax deductions 2012 Generally, you can claim the deduction if all the following requirements are met. Income tax deductions 2012 Your filing status is any filing status except married filing separately. Income tax deductions 2012 Your modified adjusted gross income is less than $75,000. Income tax deductions 2012 No one else is claiming an exemption for you on his or her 2013 tax return. Income tax deductions 2012 You paid interest on a loan taken out only to pay tuition and other qualified higher education expenses for yourself, your spouse, someone who was your dependent when the loan was taken out, or someone you could have claimed as a dependent for the year the loan was taken out except that: The person filed a joint return, The person had gross income that was equal to or more than the exemption amount for that year ($3,900 for 2013), or You could be claimed as a dependent on someone else's return. Income tax deductions 2012 The loan is not from a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. Income tax deductions 2012 The education expenses were paid or incurred within a reasonable period of time before or after the loan was taken out. Income tax deductions 2012 The person for whom the expenses were paid or incurred was an eligible student. Income tax deductions 2012 Use the worksheet in the Form 1040NR or Form 1040NR-EZ instructions to figure the deduction. Income tax deductions 2012 For more information, see Publication 970, Tax Benefits for Education. Income tax deductions 2012 Exemptions Resident aliens can claim personal exemptions and exemptions for dependents in the same way as U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 However, nonresident aliens generally can claim only a personal exemption for themselves on their U. Income tax deductions 2012 S. Income tax deductions 2012 tax return. Income tax deductions 2012 Resident Aliens You can claim personal exemptions and exemptions for dependents according to the dependency rules for U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 You can claim an exemption for your spouse on a separate return if your spouse had no gross income for U. Income tax deductions 2012 S. Income tax deductions 2012 tax purposes and was not the dependent of another taxpayer. Income tax deductions 2012 You can claim this exemption even if your spouse has not been a resident alien for a full tax year or is an alien who has not come to the United States. Income tax deductions 2012 You can claim an exemption for each person who qualifies as a dependent according to the rules for U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 The dependent must be a citizen or national (defined earlier) of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which your tax year begins. Income tax deductions 2012 Get Publication 501 for more information. Income tax deductions 2012 Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. Income tax deductions 2012 See Identification Number, earlier. Income tax deductions 2012 Nonresident Aliens Generally, if you are a nonresident alien engaged in a trade or business in the United States, you can claim only one personal exemption ($3,900 for 2013). Income tax deductions 2012 You may be able to claim an exemption for a spouse and a dependent if you are described in any of the following discussions. Income tax deductions 2012 Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. Income tax deductions 2012 See Identification Number, earlier. Income tax deductions 2012 Residents of Mexico or Canada or U. Income tax deductions 2012 S. Income tax deductions 2012 nationals. Income tax deductions 2012   If you are a resident of Mexico or Canada or a national of the United States (defined earlier), you can also claim a personal exemption for your spouse if your spouse had no gross income for U. Income tax deductions 2012 S. Income tax deductions 2012 tax purposes and cannot be claimed as the dependent on another U. Income tax deductions 2012 S. Income tax deductions 2012 taxpayer's return. Income tax deductions 2012 In addition, you can claim exemptions for your dependents who meet certain tests. Income tax deductions 2012 Residents of Mexico, Canada, or nationals of the United States must use the same rules as U. Income tax deductions 2012 S. Income tax deductions 2012 citizens to determine who is a dependent and for which dependents exemptions can be claimed. Income tax deductions 2012 See Publication 501 for these rules. Income tax deductions 2012 For purposes of these rules, dependents who are U. Income tax deductions 2012 S. Income tax deductions 2012 nationals meet the citizenship test discussed in Publication 501. Income tax deductions 2012 Residents of South Korea. Income tax deductions 2012   Nonresident aliens who are residents of South Korea may be able to claim exemptions for a spouse and children. Income tax deductions 2012 The income tax treaty with South Korea imposes two additional requirements on South Korean residents: The spouse and all children claimed must live with the alien in the United States at some time during the tax year, and The additional deduction for the exemptions must be prorated based on the ratio of the alien's U. Income tax deductions 2012 S. Income tax deductions 2012 source gross income effectively connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business for the tax year to the alien's entire income from all sources during the tax year. Income tax deductions 2012 Example. Income tax deductions 2012 Mr. Income tax deductions 2012 Park, a nonresident alien who is a resident of South Korea, lives temporarily in the United States with his wife and two children. Income tax deductions 2012 During the tax year he receives U. Income tax deductions 2012 S. Income tax deductions 2012 compensation of $18,000. Income tax deductions 2012 He also receives $6,000 of income from sources outside the United States that is not effectively connected with his U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 Thus, his total income for the year is $24,000. Income tax deductions 2012 Mr. Income tax deductions 2012 Park meets all requirements for claiming exemptions for his spouse and two children. Income tax deductions 2012 The additional deduction for 2013 is $8,775 figured as follows: $18,000 $24,000 × $11,700* = $8,775               *3 × $3,900 = $11,700   Students and business apprentices from India. Income tax deductions 2012   Students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty may be able to claim exemptions for their spouse and dependents. Income tax deductions 2012   You can claim an exemption for your spouse if he or she had no gross income during the year and cannot be claimed as a dependent on another U. Income tax deductions 2012 S. Income tax deductions 2012 taxpayer's return. Income tax deductions 2012   You can claim exemptions for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 See Publication 501 for these rules. Income tax deductions 2012   List your spouse and dependents on line 7c of Form 1040NR. Income tax deductions 2012 Enter the total on the appropriate line to the right of line 7c. Income tax deductions 2012 Itemized Deductions Nonresident aliens can claim some of the same itemized deductions that resident aliens can claim. Income tax deductions 2012 However, nonresident aliens can claim itemized deductions only if they have income effectively connected with their U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 Resident Aliens You can claim the same itemized deductions as U. Income tax deductions 2012 S. Income tax deductions 2012 citizens, using Schedule A of Form 1040. Income tax deductions 2012 These deductions include certain medical and dental expenses, state and local income taxes, real estate taxes, interest you paid on a home mortgage, charitable contributions, casualty and theft losses, and miscellaneous deductions. Income tax deductions 2012 If you do not itemize your deductions, you can claim the standard deduction for your particular filing status. Income tax deductions 2012 For further information, see Form 1040 and instructions. Income tax deductions 2012 Nonresident Aliens You can deduct certain itemized deductions if you receive income effectively connected with your U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 These deductions include state and local income taxes, charitable contributions to U. Income tax deductions 2012 S. Income tax deductions 2012 organizations, casualty and theft losses, and miscellaneous deductions. Income tax deductions 2012 Use Schedule A of Form 1040NR to claim itemized deductions. Income tax deductions 2012 If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. Income tax deductions 2012 If you are claiming any other itemized deduction, you must file Form 1040NR. Income tax deductions 2012 Standard deduction. Income tax deductions 2012   Nonresident aliens cannot claim the standard deduction. Income tax deductions 2012 However, see Students and business apprentices from India , next. Income tax deductions 2012 Students and business apprentices from India. Income tax deductions 2012   A special rule applies to students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty. Income tax deductions 2012 You can claim the standard deduction provided you do not claim itemized deductions. Income tax deductions 2012   Use Worksheet 5-1 to figure your standard deduction. Income tax deductions 2012 If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction. Income tax deductions 2012 State and local income taxes. Income tax deductions 2012   You can deduct state and local income taxes you paid on income that is effectively connected with a trade or business in the United States. Income tax deductions 2012 If you received a refund or rebate in 2013 of taxes you paid in an earlier year, do not reduce your deduction by that amount. Income tax deductions 2012 Instead, you must include the refund or rebate in income if you deducted the taxes in the earlier year and the deduction reduced your tax. Income tax deductions 2012 See Recoveries in Publication 525 for details on how to figure the amount to include in income. Income tax deductions 2012 Charitable contributions. Income tax deductions 2012   You can deduct your charitable contributions or gifts to qualified organizations subject to certain limits. Income tax deductions 2012 Qualified organizations include organizations that are religious, charitable, educational, scientific, or literary in nature, or that work to prevent cruelty to children or animals. Income tax deductions 2012 Certain organizations that promote national or international amateur sports competition are also qualified organizations. Income tax deductions 2012 Foreign organizations. Income tax deductions 2012   Contributions made directly to a foreign organization are not deductible. Income tax deductions 2012 However, you can deduct contributions to a U. Income tax deductions 2012 S. Income tax deductions 2012 organization that transfers funds to a charitable foreign organization if the U. Income tax deductions 2012 S. Income tax deductions 2012 organization controls the use of the funds or if the foreign organization is only an administrative arm of the U. Income tax deductions 2012 S. Income tax deductions 2012 organization. Income tax deductions 2012   For more information about organizations that qualify to receive charitable contributions, see Publication 526, Charitable Contributions. Income tax deductions 2012 Worksheet 5-1. Income tax deductions 2012 2013 Standard Deduction Worksheet for Students and Business Apprentices From India Caution. Income tax deductions 2012 If you are married filing a separate return and your spouse itemizes deductions, do not complete this worksheet. Income tax deductions 2012 You cannot take the standard deduction even if you were born before January 2, 1949, or are blind. Income tax deductions 2012 1 Enter the amount shown below for your filing status. Income tax deductions 2012           Single or married filing separately—$6,100 Qualifying widow(er)—$12,200 1. Income tax deductions 2012           2 Can you be claimed as a dependent on someone else's U. Income tax deductions 2012 S. Income tax deductions 2012 income tax return?  No. Income tax deductions 2012 Enter the amount from line 1 on line 4. Income tax deductions 2012 Skip line 3 and go to line 5. Income tax deductions 2012   Yes. Income tax deductions 2012 Go to line 3. Income tax deductions 2012         3 Is your earned income* more than $650?           Yes. Income tax deductions 2012 Add $350 to your earned income. Income tax deductions 2012 Enter the total. Income tax deductions 2012           No. Income tax deductions 2012 Enter $1,000 3. Income tax deductions 2012       4 Enter the smaller of line 1 or line 3 4. Income tax deductions 2012   5 If born before January 2, 1949, OR blind, enter $1,200 ($1,500 if single). Income tax deductions 2012 If born before January 2, 1949, AND blind, enter $2,400 ($3,000 if single). Income tax deductions 2012 Otherwise, enter -0- 5. Income tax deductions 2012   6 Add lines 4 and 5. Income tax deductions 2012 Enter the total here and on Form 1040NR, line 38 (or Form 1040NR-EZ, line 11). Income tax deductions 2012 Print “Standard Deduction Allowed Under U. Income tax deductions 2012 S. Income tax deductions 2012 –India Income Tax Treaty” in the space to the left of these lines. Income tax deductions 2012 This is your standard deduction for 2013. Income tax deductions 2012 6. Income tax deductions 2012   *Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Income tax deductions 2012 It also includes any amount received as a scholarship that you must include in your income. Income tax deductions 2012 Generally, your earned income is the total of the amount(s) you reported on Form 1040NR, lines 8,12,13, and 19, minus amounts on lines 27 and 31 (or Form 1040NR-EZ, lines 3 and 5, minus any amount on line 8). Income tax deductions 2012 Contributions from which you benefit. Income tax deductions 2012   If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Income tax deductions 2012   If you pay more than the fair market value to a qualified organization for merchandise, goods, or services, the amount you pay that is more than the value of the item can be a charitable contribution. Income tax deductions 2012 For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Income tax deductions 2012 Cash contributions. Income tax deductions 2012   You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written record from the charity. Income tax deductions 2012 The written record must include the name of the charity, date of the contribution, and the amount of the contribution. Income tax deductions 2012   You may deduct a cash contribution of $250 or more only if you have a written statement from the charitable organization showing: The amount of any money contributed, Whether the organization gave you any goods or services in return for your contribution, and A description and estimate of the value of any goods or services described in (2). Income tax deductions 2012 If you received only intangible religious benefits, the organization must state this, but it does not have to describe or value the benefit. Income tax deductions 2012 Noncash contributions. Income tax deductions 2012   For contributions not made in cash, the records you must keep depend on the amount of your deduction. Income tax deductions 2012 See Publication 526 for details. Income tax deductions 2012 For example, if you make a noncash contribution and the amount of your deduction is more than $500, you must complete and attach to your tax return Form 8283, Noncash Charitable Contributions. Income tax deductions 2012 If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. Income tax deductions 2012 If your total deduction is over $5,000, you also may have to get appraisals of the values of the property. Income tax deductions 2012 If the donated property is valued at more than $5,000, you must obtain a qualified appraisal. Income tax deductions 2012 You generally must attach to your tax return an appraisal of any property if your deduction for the property is more than $500,000. Income tax deductions 2012 See Form 8283 and its instructions for details. Income tax deductions 2012 Contributions of appreciated property. Income tax deductions 2012   If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Income tax deductions 2012 However, if you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Income tax deductions 2012 Your basis in the property is generally what you paid for it. Income tax deductions 2012 If you need more information about basis, get Publication 551, Basis of Assets. Income tax deductions 2012   Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. Income tax deductions 2012 For information about these rules, see Publication 526. Income tax deductions 2012 Limit. Income tax deductions 2012   The amount you can deduct in a tax year is limited in the same way it is for a citizen or resident of the United States. Income tax deductions 2012 For a discussion of limits on charitable contributions and other information, get Publication 526. Income tax deductions 2012 Casualty and theft losses. Income tax deductions 2012   You can deduct your loss from fire, storm, shipwreck, or other casualty, or theft of property even though your property is not connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 The property can be personal use property or income-producing property not connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business. Income tax deductions 2012 The property must be located in the United States at the time of the casualty or theft. Income tax deductions 2012 You can deduct theft losses only in the year in which you discover the loss. Income tax deductions 2012   The amount of the loss is the fair market value of the property immediately before the casualty or theft less its fair market value immediately after the casualty or theft (but not more than its cost or adjusted basis) less any insurance or other reimbursement. Income tax deductions 2012 The fair market value of property immediately after a theft is considered zero, because you no longer have the property. Income tax deductions 2012   If your property is covered by insurance, you should file a timely insurance claim for reimbursement. Income tax deductions 2012 If you do not, you cannot deduct this loss as a casualty or theft loss. Income tax deductions 2012   Figure your deductible casualty and theft losses on Form 4684, Casualties and Thefts. Income tax deductions 2012 Losses from personal use property. Income tax deductions 2012    You cannot deduct the first $100 of each casualty or theft loss to property held for personal use. Income tax deductions 2012 You can deduct only the total of these losses for the year (reduced by the $100 limit) that is more than 10% of your adjusted gross income (line 37, Form 1040NR) for the year. Income tax deductions 2012 Losses from income-producing property. Income tax deductions 2012   These losses are not subject to the limitations that apply to personal use property. Income tax deductions 2012 Use Section B of Form 4684 to figure your deduction for these losses. Income tax deductions 2012 Job expenses and other miscellaneous deductions. Income tax deductions 2012   You can deduct job expenses, such as allowable unreimbursed travel expenses (discussed next), and other miscellaneous deductions. Income tax deductions 2012 Generally, the allowable deductions must be related to effectively connected income. Income tax deductions 2012 Deductible expenses include: Union dues, Safety equipment and small tools needed for your job, Dues to professional organizations, Subscriptions to professional journals, Tax return preparation fees, and Casualty and theft losses of property used in performing services as an employee (employee property). Income tax deductions 2012   Most miscellaneous itemized deductions are deductible only if they are more than 2% of your adjusted gross income (line 37, Form 1040NR). Income tax deductions 2012 For more information on miscellaneous deductions, see the instructions for Form 1040NR. Income tax deductions 2012 Travel expenses. Income tax deductions 2012   You may be able to deduct your ordinary and necessary travel expenses while you are temporarily performing personal services in the United States. Income tax deductions 2012 Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. Income tax deductions 2012 You must be able to show you were present in the United States on an activity that required your temporary absence from your regular place of work. Income tax deductions 2012   For example, if you have established a “tax home” through regular employment in a foreign country, and intend to return to similar employment in the same country at the end of your temporary stay in the United States, you can deduct reasonable travel expenses you paid. Income tax deductions 2012 You cannot deduct travel expenses for other members of your family or party. Income tax deductions 2012 Deductible travel expenses. Income tax deductions 2012   If you qualify, you can deduct your expenses for: Transportation—airfare, local transportation, including train, bus, etc. Income tax deductions 2012 , Lodging—rent paid, utilities (do not include telephone), hotel or motel room expenses, and Meal expenses—actual expenses allowed if you keep records of the amounts, or, if you do not wish to keep detailed records, you are generally allowed a standard meal allowance amount depending on the date and area of your travel. Income tax deductions 2012 You generally can deduct only 50% of unreimbursed meal expenses. Income tax deductions 2012 The standard meal allowance rates for high-cost areas are available at www. Income tax deductions 2012 gsa. Income tax deductions 2012 gov/perdiem. Income tax deductions 2012 The rates for other areas are in Publication 463. Income tax deductions 2012   Use Form 2106 or 2106-EZ to figure your allowable expenses that you claim on line 7 of Schedule A (Form 1040NR). Income tax deductions 2012 Expenses allocable to U. Income tax deductions 2012 S. Income tax deductions 2012 tax-exempt income. Income tax deductions 2012   You cannot deduct an expense, or part of an expense, that is allocable to U. Income tax deductions 2012 S. Income tax deductions 2012 tax-exempt income, including income exempt by tax treaty. Income tax deductions 2012 Example. Income tax deductions 2012 Irina Oak, a citizen of Poland, resided in the United States for part of the year to acquire business experience from a U. Income tax deductions 2012 S. Income tax deductions 2012 company. Income tax deductions 2012 During her stay in the United States, she received a salary of $8,000 from her Polish employer. Income tax deductions 2012 She received no other U. Income tax deductions 2012 S. Income tax deductions 2012 source income. Income tax deductions 2012 She spent $3,000 on travel expenses, of which $1,000 were for meals. Income tax deductions 2012 None of these expenses were reimbursed. Income tax deductions 2012 Under the tax treaty with Poland, $5,000 of her salary is exempt from U. Income tax deductions 2012 S. Income tax deductions 2012 income tax. Income tax deductions 2012 In filling out Form 2106-EZ, she must reduce her deductible meal expenses by half ($500). Income tax deductions 2012 She must reduce the remaining $2,500 of travel expenses by 62. Income tax deductions 2012 5% ($1,563) because 62. Income tax deductions 2012 5% ($5,000 ÷ $8,000) of her salary is exempt from tax. Income tax deductions 2012 She enters the remaining total of $937 on line 7 of Schedule A (Form 1040NR). Income tax deductions 2012 She completes the remaining lines according to the instructions for Schedule A. Income tax deductions 2012 More information. Income tax deductions 2012   For more information about deductible expenses, reimbursements, and recordkeeping, get Publication 463. Income tax deductions 2012 Tax Credits and Payments This discussion covers tax credits and payments for resident aliens, followed by a discussion of the credits and payments for nonresident aliens. Income tax deductions 2012 Resident Aliens Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U. Income tax deductions 2012 S. Income tax deductions 2012 citizens. Income tax deductions 2012 The following items are some of the credits you may be able to claim. Income tax deductions 2012 Foreign tax credit. Income tax deductions 2012   You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. Income tax deductions 2012 You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. Income tax deductions 2012 To claim a credit for income taxes paid or accrued to a foreign country, you generally will file Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), with your Form 1040. Income tax deductions 2012   For more information, get Publication 514, Foreign Tax Credit for Individuals. Income tax deductions 2012 Child and dependent care credit. Income tax deductions 2012   You may be able to take this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Income tax deductions 2012 Generally, you must be able to claim an exemption for your dependent. Income tax deductions 2012   For more information, get Publication 503, Child and Dependent Care Expenses, and Form 2441, Child and Dependent Care Expenses. Income tax deductions 2012 Credit for the elderly or the disabled. Income tax deductions 2012   You may qualify for this credit if you are 65 or older or if you retired on permanent and total disability. Income tax deductions 2012 For more information on this credit, get Publication 524, Credit for the Elderly or the Disabled, and Schedule R (Form 1040A or 1040). Income tax deductions 2012 Education credits. Income tax deductions 2012   You may qualify for these credits if you paid qualified education expenses for yourself, your spouse, or your dependent. Income tax deductions 2012 There are two education credits: the American Opportunity Credit and the lifetime learning credit. Income tax deductions 2012 You cannot claim these credits if you are married filing separately. Income tax deductions 2012 Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to figure the credit. Income tax deductions 2012 For more information, see Publication 970. Income tax deductions 2012 Retirement savings contributions credit. Income tax deductions 2012   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. Income tax deductions 2012 You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than: $59,000, if your filing status is married filing jointly, $44,250, if your filing status is head of household, or $29,500, if your filing status is single, married filing separately, or qualifying widow(er). Income tax deductions 2012 Use Form 8880, Credit for Qualified Retirement Savings Contributions, to figure the credit. Income tax deductions 2012 For more information, see Publication 590. Income tax deductions 2012 Child tax credit. Income tax deductions 2012   You may be able to take this credit if you have a qualifying child. Income tax deductions 2012   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. Income tax deductions 2012 Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Income tax deductions 2012 Is a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen, a U. Income tax deductions 2012 S. Income tax deductions 2012 national, or a resident alien. Income tax deductions 2012 Did not provide over half of his or her own support for 2013. Income tax deductions 2012 Lived with you more than half of 2013. Income tax deductions 2012 Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. Income tax deductions 2012 Is claimed as a dependent on your return. Income tax deductions 2012 An adopted child is always treated as your own child. Income tax deductions 2012 An adopted child includes a child lawfully placed with you for legal adoption. Income tax deductions 2012   See your form instructions for additional details. Income tax deductions 2012 Adoption credit. Income tax deductions 2012   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. Income tax deductions 2012 This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. Income tax deductions 2012 To claim the adoption credit, file Form 8839, Qualified Adoption Expenses, with your Form 1040. Income tax deductions 2012 Earned income credit. Income tax deductions 2012   You may qualify for an earned income credit of up to $3,250 if a child lived with you in the United States and your earned income and adjusted gross income were each less than $37,870 ($43,210 if married filing jointly). Income tax deductions 2012 If two children lived with you in the United States and your earned income and adjusted gross income were each less than $43,038 ($48,378 if married filing jointly), your credit could be as much as $5,372. Income tax deductions 2012 If three or more children lived with you in the United States and your earned income and adjusted gross income were each less than $46,227 ($51,567 if married filing jointly), your credit could be as much as $6,044. Income tax deductions 2012 If you do not have a qualifying child and your earned income and adjusted gross income were each less than $14,340 ($19,680 if married filing jointly), your credit could be as much as $487. Income tax deductions 2012 You cannot claim the earned income credit if your filing status is married filing separately. Income tax deductions 2012    You and your spouse (if filing a joint return) and any qualifying child must have valid SSNs to claim this credit. Income tax deductions 2012 You cannot claim the credit using an ITIN. Income tax deductions 2012 If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. Income tax deductions 2012 An example of a federally funded benefit is Medicaid. Income tax deductions 2012 If a card has this legend and the individual's immigration status has changed so that the individual is now a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. Income tax deductions 2012 Other information. Income tax deductions 2012   There are other eligibility rules that are not discussed here. Income tax deductions 2012 For more information, get Publication 596, Earned Income Credit. Income tax deductions 2012 Nonresident Aliens You can claim some of the same credits that resident aliens can claim. Income tax deductions 2012 You can also report certain taxes you paid, are considered to have paid, or that were withheld from your income. Income tax deductions 2012 Credits Credits are allowed only if you receive effectively connected income. Income tax deductions 2012 You may be able to claim some of the following credits. Income tax deductions 2012 Foreign tax credit. Income tax deductions 2012   If you receive foreign source income that is effectively connected with a trade or business in the United States, you can claim a credit for any income taxes paid or accrued to any foreign country or U. Income tax deductions 2012 S. Income tax deductions 2012 possession on that income. Income tax deductions 2012   If you do not have foreign source income effectively connected with a U. Income tax deductions 2012 S. Income tax deductions 2012 trade or business, you cannot claim credits against your U. Income tax deductions 2012 S. Income tax deductions 2012 tax for taxes paid or accrued to a foreign country or U. Income tax deductions 2012 S. Income tax deductions 2012 possession. Income tax deductions 2012   You cannot take any credit for taxes imposed by a foreign country or U. Income tax deductions 2012 S. Income tax deductions 2012 possession on your U. Income tax deductions 2012 S. Income tax deductions 2012 source income if those taxes were imposed only because you are a citizen or resident of the foreign country or possession. Income tax deductions 2012   If you claim a foreign tax credit, you generally will have to attach to your return a Form 1116. Income tax deductions 2012 See Publication 514 for more information. Income tax deductions 2012 Child and dependent care credit. Income tax deductions 2012   You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Income tax deductions 2012 Generally, you must be able to claim an exemption for your dependent. Income tax deductions 2012   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Joint Return Test in Publication 503). Income tax deductions 2012   The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. Income tax deductions 2012 Earned income generally means wages, salaries, and professional fees for personal services performed. Income tax deductions 2012   For more information, get Publication 503. Income tax deductions 2012 Education credits. Income tax deductions 2012   If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. Income tax deductions 2012 However, if you are married and choose to file a joint return with a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or resident spouse as discussed in chapter 1, you may be eligible for these credits. Income tax deductions 2012 Retirement savings contributions credit. Income tax deductions 2012   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. Income tax deductions 2012 You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than $29,500. Income tax deductions 2012 Use Form 8880 to figure the credit. Income tax deductions 2012 For more information, see Publication 590. Income tax deductions 2012 Child tax credit. Income tax deductions 2012   You may be able to take this credit if you have a qualifying child. Income tax deductions 2012   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. Income tax deductions 2012 Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Income tax deductions 2012 Is a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen, a U. Income tax deductions 2012 S. Income tax deductions 2012 national, or a resident alien. Income tax deductions 2012 Did not provide over half of his or her own support for 2013. Income tax deductions 2012 Lived with you more than half of 2013. Income tax deductions 2012 Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. Income tax deductions 2012 Is claimed as a dependent on your return. Income tax deductions 2012 An adopted child is always treated as your own child. Income tax deductions 2012 An adopted child includes a child lawfully placed with you for legal adoption. Income tax deductions 2012   See your form instructions for additional details. Income tax deductions 2012 Adoption credit. Income tax deductions 2012   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. Income tax deductions 2012 This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. Income tax deductions 2012 To claim the adoption credit, file Form 8839 with your Form 1040NR. Income tax deductions 2012   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Not Filing Jointly in the Form 8839 instructions). Income tax deductions 2012 Credit for prior year minimum tax. Income tax deductions 2012   If you paid alternative minimum tax in a prior year, get Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, to see if you qualify for this credit. Income tax deductions 2012 Earned income credit. Income tax deductions 2012   If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. Income tax deductions 2012 However, if you are married and choose to file a joint return with a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or resident spouse as discussed in chapter 1, you may be eligible for the credit. Income tax deductions 2012    You, your spouse, and any qualifying child must have valid SSNs to claim this credit. Income tax deductions 2012 You cannot claim the credit using an ITIN. Income tax deductions 2012 If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. Income tax deductions 2012 An example of a federally funded benefit is Medicaid. Income tax deductions 2012 If a card has this legend and the individual's immigration status has changed so that the individual is now a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. Income tax deductions 2012   See Publication 596 for more information on the credit. Income tax deductions 2012 Tax Withheld You can claim the tax withheld during the year as a payment against your U. Income tax deductions 2012 S. Income tax deductions 2012 tax. Income tax deductions 2012 You claim it on line 61 of Form 1040NR or on line 18 of Form 1040NR-EZ. Income tax deductions 2012 The tax withheld reduces any tax you owe with Form 1040NR or Form 1040NR-EZ. Income tax deductions 2012 Withholding from wages. Income tax deductions 2012   Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a payment against your U. Income tax deductions 2012 S. Income tax deductions 2012 income tax liability for the same year. Income tax deductions 2012 You can claim the income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wages (or any other income) were connected with a trade or business in the United States. Income tax deductions 2012 Excess social security tax withheld. Income tax deductions 2012   If you have two or more employers, you may be able to claim a credit against your U. Income tax deductions 2012 S. Income tax deductions 2012 income tax liability for social security tax withheld in excess of the maximum required. Income tax deductions 2012 See Social Security and Medicare Taxes in chapter 8 for more information. Income tax deductions 2012 Additional Medicare Tax. Income tax deductions 2012   Your employer is responsible for withholding the 0. Income tax deductions 2012 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2013. Income tax deductions 2012 If you do not owe Additional Medicare Tax, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959. Income tax deductions 2012 Tax paid on undistributed long-term capital gains. Income tax deductions 2012   If you are a shareholder in a mutual fund (or other regulated investment company) or real estate investment trust, you can claim a credit for your share of any taxes paid by the company on its undistributed long-term capital gains. Income tax deductions 2012 You will receive information on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, which you must attach to your return. Income tax deductions 2012 Tax withheld at the source. Income tax deductions 2012   You can claim as a payment any tax withheld at the source on investment and other fixed or determinable annual or periodic income paid to you. Income tax deductions 2012 Fixed or determinable income includes interest, dividend, rental, and royalty income that you do not claim to be effectively connected income. Income tax deductions 2012 Wage or salary payments can be fixed or determinable income to you, but usually are subject to withholding as discussed above. Income tax deductions 2012 Taxes on fixed or determinable income are withheld at a 30% rate or at a lower treaty rate. Income tax deductions 2012 Tax withheld on partnership income. Income tax deductions 2012   If you are a foreign partner in a partnership, the partnership will withhold tax on your share of effectively connected taxable income from the partnership. Income tax deductions 2012 The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. Income tax deductions 2012 A partnership that is publicly traded may withhold on your actual distributions of effectively connected income. Income tax deductions 2012 In this case, the partnership will give you a statement on Form 1042-S. Income tax deductions 2012 Claim the tax withheld as a payment on line 61b or 61d of Form 1040NR, as appropriate. Income tax deductions 2012 Claiming tax withheld on your return. Income tax deductions 2012   When you fill out your tax return, take extra care to enter the correct amount of any tax withheld shown on your information documents. Income tax deductions 2012 The following table lists some of the more common information documents and shows where to find the amount of tax withheld. Income tax deductions 2012 Form number Location  of tax  withheld RRB-1042S Box 12 SSA-1042S Box 9 W-2 Box 2 W-2c Box 2 1042-S Box 9 8805 Line 10 8288-A Box 2 Bona Fide Residents of American Samoa or Puerto Rico If you are a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you generally are taxed the same as resident aliens. Income tax deductions 2012 You should file Form 1040 and report all income from sources both in and outside the United States. Income tax deductions 2012 However, you can exclude the income discussed in the following paragraphs. Income tax deductions 2012 For tax purposes other than reporting income, however, you will be treated as a nonresident alien. Income tax deductions 2012 For example, you are not allowed the standard deduction, you cannot file a joint return, and you are not allowed a deduction for a dependent unless that person is a citizen or national of the United States. Income tax deductions 2012 There are also limits on what deductions and credits are allowed. Income tax deductions 2012 See Nonresident Aliens under Deductions , Itemized Deductions , and Tax Credits and Payments in this chapter. Income tax deductions 2012 Residents of Puerto Rico. Income tax deductions 2012   If you are a bona fide resident of Puerto Rico for the entire year, you can exclude from gross income all income from sources in Puerto Rico (other than amounts for services performed as an employee of the United States or any of its agencies). Income tax deductions 2012   If you report income on a calendar year basis and you do not have wages subject to withholding, file your return and pay your tax by June 15. Income tax deductions 2012 You must also make your first payment of estimated tax by June 15. Income tax deductions 2012 You cannot file a joint income tax return or make joint payments of estimated tax. Income tax deductions 2012 However, if you are married to a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen or resident, see Nonresident Spouse Treated as a Resident in chapter 1. Income tax deductions 2012   If you earn wages subject to withholding, your U. Income tax deductions 2012 S. Income tax deductions 2012 income tax return is due by April 15. Income tax deductions 2012 Your first payment of estimated tax is also due by April 15. Income tax deductions 2012 For information on withholding and estimated tax, see chapter 8 . Income tax deductions 2012 Residents of American Samoa. Income tax deductions 2012   If you are a bona fide resident of American Samoa for the entire year, you can exclude from gross income all income from sources in American Samoa (other than amounts for services performed as an employee of the U. Income tax deductions 2012 S. Income tax deductions 2012 government or any of its agencies). Income tax deductions 2012 An employee of the American Samoan government is not considered an employee of the U. Income tax deductions 2012 S. Income tax deductions 2012 government or any of its agencies for purposes of the exclusion. Income tax deductions 2012 For more information about this exclusion, get Form 4563 and Publication 570, Tax Guide for Individuals With Income From U. Income tax deductions 2012 S. Income tax deductions 2012 Possessions. Income tax deductions 2012 Prev  Up  Next   Home   More Online Publications



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The Income Tax Deductions 2012

Income tax deductions 2012 Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Income tax deductions 2012 Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Income tax deductions 2012 However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Income tax deductions 2012 Even then, the deductible amount of these types of expenses may be limited. Income tax deductions 2012 Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Income tax deductions 2012 To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Income tax deductions 2012 Additional tests for employee use. Income tax deductions 2012   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Income tax deductions 2012 You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Income tax deductions 2012 If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Income tax deductions 2012 Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Income tax deductions 2012 The area used for business can be a room or other separately identifiable space. Income tax deductions 2012 The space does not need to be marked off by a permanent partition. Income tax deductions 2012 You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Income tax deductions 2012 Example. Income tax deductions 2012 You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Income tax deductions 2012 Your family also uses the den for recreation. Income tax deductions 2012 The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Income tax deductions 2012 Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Income tax deductions 2012 You use part of your home for the storage of inventory or product samples (discussed next). Income tax deductions 2012 You use part of your home as a daycare facility, discussed later under Daycare Facility . Income tax deductions 2012 Note. Income tax deductions 2012 With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Income tax deductions 2012 Storage of inventory or product samples. Income tax deductions 2012    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Income tax deductions 2012 However, you must meet all the following tests. Income tax deductions 2012 You sell products at wholesale or retail as your trade or business. Income tax deductions 2012 You keep the inventory or product samples in your home for use in your trade or business. Income tax deductions 2012 Your home is the only fixed location of your trade or business. Income tax deductions 2012 You use the storage space on a regular basis. Income tax deductions 2012 The space you use is a separately identifiable space suitable for storage. Income tax deductions 2012 Example. Income tax deductions 2012 Your home is the only fixed location of your business of selling mechanics' tools at retail. Income tax deductions 2012 You regularly use half of your basement for storage of inventory and product samples. Income tax deductions 2012 You sometimes use the area for personal purposes. Income tax deductions 2012 The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Income tax deductions 2012 Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Income tax deductions 2012 Incidental or occasional business use is not regular use. Income tax deductions 2012 You must consider all facts and circumstances in determining whether your use is on a regular basis. Income tax deductions 2012 Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Income tax deductions 2012 If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Income tax deductions 2012 Example. Income tax deductions 2012 You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Income tax deductions 2012 You do not make investments as a broker or dealer. Income tax deductions 2012 So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Income tax deductions 2012 Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Income tax deductions 2012 To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Income tax deductions 2012 To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Income tax deductions 2012 Your home office will qualify as your principal place of business if you meet the following requirements. Income tax deductions 2012 You use it exclusively and regularly for administrative or management activities of your trade or business. Income tax deductions 2012 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Income tax deductions 2012 If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Income tax deductions 2012 However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Income tax deductions 2012 Administrative or management activities. Income tax deductions 2012   There are many activities that are administrative or managerial in nature. Income tax deductions 2012 The following are a few examples. Income tax deductions 2012 Billing customers, clients, or patients. Income tax deductions 2012 Keeping books and records. Income tax deductions 2012 Ordering supplies. Income tax deductions 2012 Setting up appointments. Income tax deductions 2012 Forwarding orders or writing reports. Income tax deductions 2012 Administrative or management activities performed at other locations. Income tax deductions 2012   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Income tax deductions 2012 You have others conduct your administrative or management activities at locations other than your home. Income tax deductions 2012 (For example, another company does your billing from its place of business. Income tax deductions 2012 ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Income tax deductions 2012 You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Income tax deductions 2012 You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Income tax deductions 2012 (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Income tax deductions 2012 ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Income tax deductions 2012 Please click here for the text description of the image. Income tax deductions 2012 Can you deduct business use of the home expenses? Example 1. Income tax deductions 2012 John is a self-employed plumber. Income tax deductions 2012 Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Income tax deductions 2012 He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Income tax deductions 2012 John writes up estimates and records of work completed at his customers' premises. Income tax deductions 2012 He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Income tax deductions 2012 John does not do his own billing. Income tax deductions 2012 He uses a local bookkeeping service to bill his customers. Income tax deductions 2012 John's home office qualifies as his principal place of business for deducting expenses for its use. Income tax deductions 2012 He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Income tax deductions 2012 His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Income tax deductions 2012 He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Income tax deductions 2012 Example 2. Income tax deductions 2012 Pamela is a self-employed sales representative for several different product lines. Income tax deductions 2012 She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Income tax deductions 2012 She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Income tax deductions 2012 Pamela's business is selling products to customers at various locations throughout her territory. Income tax deductions 2012 To make these sales, she regularly visits customers to explain the available products and take orders. Income tax deductions 2012 Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Income tax deductions 2012 She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Income tax deductions 2012 The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Income tax deductions 2012 She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Income tax deductions 2012 Example 3. Income tax deductions 2012 Paul is a self-employed anesthesiologist. Income tax deductions 2012 He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Income tax deductions 2012 One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Income tax deductions 2012 Paul very rarely uses the office the hospital provides. Income tax deductions 2012 He uses a room in his home that he has converted to an office. Income tax deductions 2012 He uses this room exclusively and regularly to conduct all the following activities. Income tax deductions 2012 Contacting patients, surgeons, and hospitals regarding scheduling. Income tax deductions 2012 Preparing for treatments and presentations. Income tax deductions 2012 Maintaining billing records and patient logs. Income tax deductions 2012 Satisfying continuing medical education requirements. Income tax deductions 2012 Reading medical journals and books. Income tax deductions 2012 Paul's home office qualifies as his principal place of business for deducting expenses for its use. Income tax deductions 2012 He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Income tax deductions 2012 His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Income tax deductions 2012 His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Income tax deductions 2012 He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Income tax deductions 2012 Example 4. Income tax deductions 2012 Kathleen is employed as a teacher. Income tax deductions 2012 She is required to teach and meet with students at the school and to grade papers and tests. Income tax deductions 2012 The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Income tax deductions 2012 The school does not require her to work at home. Income tax deductions 2012 Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Income tax deductions 2012 She uses this home office exclusively and regularly for the administrative duties of her teaching job. Income tax deductions 2012 Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Income tax deductions 2012 Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Income tax deductions 2012 More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Income tax deductions 2012 Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Income tax deductions 2012 You must use the home office exclusively and regularly for one or more of the following purposes. Income tax deductions 2012 As the principal place of business for one or more of your trades or businesses. Income tax deductions 2012 As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Income tax deductions 2012 If your home office is a separate structure, in connection with one or more of your trades or businesses. Income tax deductions 2012 You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Income tax deductions 2012 e. Income tax deductions 2012 , personal) activities. Income tax deductions 2012 If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Income tax deductions 2012 See Rental to employer , later, if you rent part of your home to your employer. Income tax deductions 2012 Example. Income tax deductions 2012 Tracy White is employed as a teacher. Income tax deductions 2012 Her principal place of work is the school, which provides her office space to do her school work. Income tax deductions 2012 She also has a mail order jewelry business. Income tax deductions 2012 All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Income tax deductions 2012 If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Income tax deductions 2012 If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Income tax deductions 2012 As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Income tax deductions 2012 She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Income tax deductions 2012 Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Income tax deductions 2012 You physically meet with patients, clients, or customers on your premises. Income tax deductions 2012 Their use of your home is substantial and integral to the conduct of your business. Income tax deductions 2012 Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Income tax deductions 2012 Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Income tax deductions 2012 The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Income tax deductions 2012 Example. Income tax deductions 2012 June Quill, a self-employed attorney, works 3 days a week in her city office. Income tax deductions 2012 She works 2 days a week in her home office used only for business. Income tax deductions 2012 She regularly meets clients there. Income tax deductions 2012 Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Income tax deductions 2012 Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Income tax deductions 2012 The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Income tax deductions 2012 Example. Income tax deductions 2012 John Berry operates a floral shop in town. Income tax deductions 2012 He grows the plants for his shop in a greenhouse behind his home. Income tax deductions 2012 He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Income tax deductions 2012 Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Income tax deductions 2012 When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Income tax deductions 2012 Electing to use the simplified method. Income tax deductions 2012   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Income tax deductions 2012 You choose whether or not to figure your deduction using the simplified method each taxable year. Income tax deductions 2012 See Using the Simplified Method , later. Income tax deductions 2012 Rental to employer. Income tax deductions 2012   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Income tax deductions 2012 You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Income tax deductions 2012 However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Income tax deductions 2012 Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Income tax deductions 2012 You will also need to figure the percentage of your home used for business and the limit on the deduction. Income tax deductions 2012 If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Income tax deductions 2012 If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Income tax deductions 2012 Part-year use. Income tax deductions 2012   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Income tax deductions 2012 For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Income tax deductions 2012 Expenses related to tax-exempt income. Income tax deductions 2012   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Income tax deductions 2012 However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Income tax deductions 2012 No deduction is allowed for other expenses related to the tax-exempt allowance. Income tax deductions 2012   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Income tax deductions 2012 Actual Expenses You must divide the expenses of operating your home between personal and business use. Income tax deductions 2012 The part of a home operating expense you can use to figure your deduction depends on both of the following. Income tax deductions 2012 Whether the expense is direct, indirect, or unrelated. Income tax deductions 2012 The percentage of your home used for business. Income tax deductions 2012 Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Income tax deductions 2012 Table 1. Income tax deductions 2012 Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Income tax deductions 2012 Deductible in full. Income tax deductions 2012 *   Examples:  Painting or repairs  only in the area  used for business. Income tax deductions 2012 Exception: May be only partially  deductible in a daycare facility. Income tax deductions 2012 See Daycare Facility , later. Income tax deductions 2012 Indirect Expenses for  keeping up and running your  entire home. Income tax deductions 2012 Deductible based on the percentage of your home used for business. Income tax deductions 2012 *   Examples:  Insurance, utilities, and  general repairs. Income tax deductions 2012   Unrelated Expenses only for  the parts of your  home not used  for business. Income tax deductions 2012 Not deductible. Income tax deductions 2012   Examples:  Lawn care or painting  a room not used  for business. Income tax deductions 2012   *Subject to the deduction limit, discussed later. Income tax deductions 2012 Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Income tax deductions 2012 Certain expenses are deductible whether or not you use your home for business. Income tax deductions 2012 If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Income tax deductions 2012 These expenses include the following. Income tax deductions 2012 Real estate taxes. Income tax deductions 2012 Qualified mortgage insurance premiums. Income tax deductions 2012 Deductible mortgage interest. Income tax deductions 2012 Casualty losses. Income tax deductions 2012 Other expenses are deductible only if you use your home for business. Income tax deductions 2012 You can use the business percentage of these expenses to figure your total business use of the home deduction. Income tax deductions 2012 These expenses generally include (but are not limited to) the following. Income tax deductions 2012 Depreciation (covered under Depreciating Your Home , later). Income tax deductions 2012 Insurance. Income tax deductions 2012 Rent paid for the use of property you do not own but use in your trade or business. Income tax deductions 2012 Repairs. Income tax deductions 2012 Security system. Income tax deductions 2012 Utilities and services. Income tax deductions 2012 Real estate taxes. Income tax deductions 2012   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Income tax deductions 2012   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Income tax deductions 2012 Deductible mortgage interest. Income tax deductions 2012   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Income tax deductions 2012 You can include interest on a second mortgage in this computation. Income tax deductions 2012 If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Income tax deductions 2012 For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Income tax deductions 2012 Qualified mortgage insurance premiums. Income tax deductions 2012   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Income tax deductions 2012 You can include premiums for insurance on a second mortgage in this computation. Income tax deductions 2012 If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Income tax deductions 2012 For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Income tax deductions 2012 Casualty losses. Income tax deductions 2012    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Income tax deductions 2012 A direct expense is the loss on the portion of the property you use only in your business. Income tax deductions 2012 Use the entire loss to figure the business use of the home deduction. Income tax deductions 2012 An indirect expense is the loss on property you use for both business and personal purposes. Income tax deductions 2012 Use only the business portion to figure the deduction. Income tax deductions 2012 An unrelated expense is the loss on property you do not use in your business. Income tax deductions 2012 Do not use any of the loss to figure the deduction. Income tax deductions 2012 Example. Income tax deductions 2012 You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Income tax deductions 2012 A storm damages your roof. Income tax deductions 2012 This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Income tax deductions 2012 You would complete Form 4684, Casualties and Thefts, to report your loss. Income tax deductions 2012 You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Income tax deductions 2012 Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Income tax deductions 2012 Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Income tax deductions 2012 Forms and worksheets to use. Income tax deductions 2012   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Income tax deductions 2012 If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Income tax deductions 2012 You will also need to get Form 4684. Income tax deductions 2012 More information. Income tax deductions 2012   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Income tax deductions 2012 Insurance. Income tax deductions 2012   You can deduct the cost of insurance that covers the business part of your home. Income tax deductions 2012 However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Income tax deductions 2012 You can deduct the business percentage of the part that applies to the following year in that year. Income tax deductions 2012 Rent. Income tax deductions 2012   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Income tax deductions 2012 To figure your deduction, multiply your rent payments by the percentage of your home used for business. Income tax deductions 2012   If you own your home, you cannot deduct the fair rental value of your home. Income tax deductions 2012 However, see Depreciating Your Home , later. Income tax deductions 2012 Repairs. Income tax deductions 2012   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Income tax deductions 2012 For example, a furnace repair benefits the entire home. Income tax deductions 2012 If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Income tax deductions 2012   Repairs keep your home in good working order over its useful life. Income tax deductions 2012 Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Income tax deductions 2012 However, repairs are sometimes treated as a permanent improvement and are not deductible. Income tax deductions 2012 See Permanent improvements , later, under Depreciating Your Home. Income tax deductions 2012 Security system. Income tax deductions 2012   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Income tax deductions 2012 You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Income tax deductions 2012 Utilities and services. Income tax deductions 2012   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Income tax deductions 2012 However, if you use part of your home for business, you can deduct the business part of these expenses. Income tax deductions 2012 Generally, the business percentage for utilities is the same as the percentage of your home used for business. Income tax deductions 2012 Telephone. Income tax deductions 2012   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Income tax deductions 2012 e. Income tax deductions 2012 , landline) is a nondeductible personal expense. Income tax deductions 2012 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. Income tax deductions 2012 Do not include these expenses as a cost of using your home for business. Income tax deductions 2012 Deduct these charges separately on the appropriate form or schedule. Income tax deductions 2012 For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Income tax deductions 2012 Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Income tax deductions 2012 Depreciation is an allowance for the wear and tear on the part of your home used for business. Income tax deductions 2012 You cannot depreciate the cost or value of the land. Income tax deductions 2012 You recover its cost when you sell or otherwise dispose of the property. Income tax deductions 2012 Before you figure your depreciation deduction, you need to know the following information. Income tax deductions 2012 The month and year you started using your home for business. Income tax deductions 2012 The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Income tax deductions 2012 The cost of any improvements before and after you began using the property for business. Income tax deductions 2012 The percentage of your home used for business. Income tax deductions 2012 See Business Percentage , later. Income tax deductions 2012 Adjusted basis defined. Income tax deductions 2012   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Income tax deductions 2012 For a discussion of adjusted basis, see Publication 551. Income tax deductions 2012 Permanent improvements. Income tax deductions 2012   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Income tax deductions 2012 Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Income tax deductions 2012    You must carefully distinguish between repairs and improvements. Income tax deductions 2012 See Repairs , earlier, under Actual Expenses. Income tax deductions 2012 You also must keep accurate records of these expenses. Income tax deductions 2012 These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Income tax deductions 2012 However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Income tax deductions 2012 Example. Income tax deductions 2012 You buy an older home and fix up two rooms as a beauty salon. Income tax deductions 2012 You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Income tax deductions 2012 Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Income tax deductions 2012 However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Income tax deductions 2012 You cannot deduct any portion of it as a repair expense. Income tax deductions 2012 Adjusting for depreciation deducted in earlier years. Income tax deductions 2012   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Income tax deductions 2012 If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Income tax deductions 2012 If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Income tax deductions 2012   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Income tax deductions 2012   If you deducted the incorrect amount of depreciation, see Publication 946. Income tax deductions 2012 Fair market value defined. Income tax deductions 2012   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Income tax deductions 2012 Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Income tax deductions 2012 Figuring the depreciation deduction for the current year. Income tax deductions 2012   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Income tax deductions 2012   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Income tax deductions 2012 Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Income tax deductions 2012 For more information on MACRS and other methods of depreciation, see Publication 946. Income tax deductions 2012   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Income tax deductions 2012 The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Income tax deductions 2012 The adjusted basis of your home (excluding land) on the date you began using your home for business. Income tax deductions 2012 The fair market value of your home (excluding land) on the date you began using your home for business. Income tax deductions 2012 Depreciation table. Income tax deductions 2012   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Income tax deductions 2012 Table 2. Income tax deductions 2012 MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Income tax deductions 2012 461% 2 2. Income tax deductions 2012 247% 3 2. Income tax deductions 2012 033% 4 1. Income tax deductions 2012 819% 5 1. Income tax deductions 2012 605% 6 1. Income tax deductions 2012 391% 7 1. Income tax deductions 2012 177% 8 0. Income tax deductions 2012 963% 9 0. Income tax deductions 2012 749% 10 0. Income tax deductions 2012 535% 11 0. Income tax deductions 2012 321% 12 0. Income tax deductions 2012 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Income tax deductions 2012 See Publication 946 for the percentages for the remaining tax years of the recovery period. Income tax deductions 2012 Example. Income tax deductions 2012 In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Income tax deductions 2012 This room is 8% of the square footage of his home. Income tax deductions 2012 He bought the home in 2003 for $125,000. Income tax deductions 2012 He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Income tax deductions 2012 In May, the house had a fair market value of $165,000. Income tax deductions 2012 He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Income tax deductions 2012 The result is $9,200, his depreciable basis for the business part of the house. Income tax deductions 2012 George files his return based on the calendar year. Income tax deductions 2012 May is the 5th month of his tax year. Income tax deductions 2012 He multiplies his depreciable basis of $9,200 by 1. Income tax deductions 2012 605% (. Income tax deductions 2012 01605), the percentage from the table for the 5th month. Income tax deductions 2012 His depreciation deduction is $147. Income tax deductions 2012 66. Income tax deductions 2012 Depreciating permanent improvements. Income tax deductions 2012   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Income tax deductions 2012 Depreciate these costs as part of the cost of your home as explained earlier. Income tax deductions 2012 The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Income tax deductions 2012 Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Income tax deductions 2012 For improvements made this year, the recovery period is 39 years. Income tax deductions 2012 For the percentage to use for the first year, see Table 2, earlier. Income tax deductions 2012 For more information on recovery periods, see Publication 946. Income tax deductions 2012 Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Income tax deductions 2012 Use the resulting percentage to figure the business part of the expenses for operating your entire home. Income tax deductions 2012 You can use any reasonable method to determine the business percentage. Income tax deductions 2012 The following are two commonly used methods for figuring the percentage. Income tax deductions 2012 Divide the area (length multiplied by the width) used for business by the total area of your home. Income tax deductions 2012 If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Income tax deductions 2012 Example 1. Income tax deductions 2012 Your office is 240 square feet (12 feet × 20 feet). Income tax deductions 2012 Your home is 1,200 square feet. Income tax deductions 2012 Your office is 20% (240 ÷ 1,200) of the total area of your home. Income tax deductions 2012 Your business percentage is 20%. Income tax deductions 2012 Example 2. Income tax deductions 2012 You use one room in your home for business. Income tax deductions 2012 Your home has 10 rooms, all about equal size. Income tax deductions 2012 Your office is 10% (1 ÷ 10) of the total area of your home. Income tax deductions 2012 Your business percentage is 10%. Income tax deductions 2012 Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Income tax deductions 2012 Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Income tax deductions 2012 If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Income tax deductions 2012 Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Income tax deductions 2012 The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Income tax deductions 2012 These expenses are discussed in detail under Actual Expenses , earlier. Income tax deductions 2012 The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Income tax deductions 2012 If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Income tax deductions 2012 Carryover of unallowed expenses. Income tax deductions 2012   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Income tax deductions 2012 They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Income tax deductions 2012 Figuring the deduction limit and carryover. Income tax deductions 2012   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Income tax deductions 2012 If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Income tax deductions 2012 Example. Income tax deductions 2012 You meet the requirements for deducting expenses for the business use of your home. Income tax deductions 2012 You use 20% of your home for business. Income tax deductions 2012 In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Income tax deductions 2012    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Income tax deductions 2012 You also can deduct all of your business expenses not related to the use of your home ($2,000). Income tax deductions 2012 Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Income tax deductions 2012 Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Income tax deductions 2012 You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Income tax deductions 2012 More than one place of business. Income tax deductions 2012   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Income tax deductions 2012 In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Income tax deductions 2012 If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Income tax deductions 2012 For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Income tax deductions 2012 Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Income tax deductions 2012 In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Income tax deductions 2012 The area you use to figure your deduction is limited to 300 square feet. Income tax deductions 2012 See Simplified Amount , later, for information about figuring the amount of the deduction. Income tax deductions 2012 For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Income tax deductions 2012 R. Income tax deductions 2012 B. Income tax deductions 2012 478, available at www. Income tax deductions 2012 irs. Income tax deductions 2012 gov/irb/2013-06_IRB/ar09. Income tax deductions 2012 html. Income tax deductions 2012 Actual expenses and depreciation of your home. Income tax deductions 2012   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Income tax deductions 2012 You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Income tax deductions 2012 The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Income tax deductions 2012 If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Income tax deductions 2012 More information. Income tax deductions 2012   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Income tax deductions 2012 R. Income tax deductions 2012 B. Income tax deductions 2012 478, available at www. Income tax deductions 2012 irs. Income tax deductions 2012 gov/irb/2013-06_IRB/ar09. Income tax deductions 2012 html. Income tax deductions 2012 See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Income tax deductions 2012 Expenses deductible without regard to business use. Income tax deductions 2012   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Income tax deductions 2012 These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Income tax deductions 2012 See Where To Deduct , later. Income tax deductions 2012 If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Income tax deductions 2012 No deduction of carryover of actual expenses. Income tax deductions 2012   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Income tax deductions 2012 Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Income tax deductions 2012 Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Income tax deductions 2012 Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Income tax deductions 2012 An election for a taxable year, once made, is irrevocable. Income tax deductions 2012 A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Income tax deductions 2012 Shared use. Income tax deductions 2012   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Income tax deductions 2012 More than one qualified business use. Income tax deductions 2012   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Income tax deductions 2012 More than one home. Income tax deductions 2012   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Income tax deductions 2012 You must figure the deduction for any other home using actual expenses. Income tax deductions 2012 Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Income tax deductions 2012 To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Income tax deductions 2012 The allowable area of your home used in conducting the business. Income tax deductions 2012 If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Income tax deductions 2012 The gross income from the business use of your home. Income tax deductions 2012 The amount of the business expenses that are not related to the use of your home. Income tax deductions 2012 If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Income tax deductions 2012 To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Income tax deductions 2012 Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Income tax deductions 2012 See Allowable area and Space used regularly for daycare , later. Income tax deductions 2012 Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Income tax deductions 2012 If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Income tax deductions 2012 See Gross income limitation , later. Income tax deductions 2012 Take the smaller of the amounts from (1) and (2). Income tax deductions 2012 This is the amount you can deduct for this qualified business use of your home using the simplified method. Income tax deductions 2012 If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Income tax deductions 2012 If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Income tax deductions 2012 Allowable area. Income tax deductions 2012   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Income tax deductions 2012 Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Income tax deductions 2012 You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Income tax deductions 2012 Area used by a qualified joint venture. Income tax deductions 2012   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Income tax deductions 2012 Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Income tax deductions 2012 Then, each spouse will figure the allowable area separately. Income tax deductions 2012 For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Income tax deductions 2012 Shared use. Income tax deductions 2012   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Income tax deductions 2012 You must allocate the shared space between you and the other person in a reasonable manner. Income tax deductions 2012 Example. Income tax deductions 2012 Kristin and Lindsey are roommates. Income tax deductions 2012 Kristin uses 300 square feet of their home for a qualified business use. Income tax deductions 2012 Lindsey uses 200 square feet of their home for a separate qualified business use. Income tax deductions 2012 The qualified business uses share 100 square feet. Income tax deductions 2012 In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Income tax deductions 2012 If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Income tax deductions 2012 More than one qualified business use. Income tax deductions 2012   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Income tax deductions 2012 Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Income tax deductions 2012 However, do not allocate more square feet to a qualified business use than you actually use for that business. Income tax deductions 2012 Rental use. Income tax deductions 2012   The simplified method does not apply to rental use. Income tax deductions 2012 A rental use that qualifies for the deduction must be figured using actual expenses. Income tax deductions 2012 If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Income tax deductions 2012 You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Income tax deductions 2012 Part-year use or area changes. Income tax deductions 2012   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Income tax deductions 2012 You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Income tax deductions 2012 When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Income tax deductions 2012 Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Income tax deductions 2012 Example 1. Income tax deductions 2012 Andy files his federal income tax return on a calendar year basis. Income tax deductions 2012 On July 20, he began using 420 square feet of his home for a qualified business use. Income tax deductions 2012 He continued to use the 420 square feet until the end of the year. Income tax deductions 2012 His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Income tax deductions 2012 Example 2. Income tax deductions 2012 Amy files her federal income tax return on a calendar year basis. Income tax deductions 2012 On April 20, she began using 100 square feet of her home for a qualified business use. Income tax deductions 2012 On August 5, she expanded the area of her qualified use to 330 square feet. Income tax deductions 2012 Amy continued to use the 330 square feet until the end of the year. Income tax deductions 2012 Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Income tax deductions 2012 Gross income limitation. Income tax deductions 2012   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Income tax deductions 2012 If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Income tax deductions 2012 Business expenses not related to use of the home. Income tax deductions 2012   These expenses relate to the business activity in the home, but not to the use of the home itself. Income tax deductions 2012 You can still deduct business expenses that are unrelated to the use of the home. Income tax deductions 2012 See Where To Deduct , later. Income tax deductions 2012 Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Income tax deductions 2012 Space used regularly for daycare. Income tax deductions 2012   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Income tax deductions 2012 The reduced rate will equal the prescribed rate times a fraction. Income tax deductions 2012 The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Income tax deductions 2012 You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Income tax deductions 2012    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Income tax deductions 2012 Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Income tax deductions 2012 To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Income tax deductions 2012 You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Income tax deductions 2012 You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Income tax deductions 2012 You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Income tax deductions 2012 Figuring the deduction. Income tax deductions 2012   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Income tax deductions 2012    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Income tax deductions 2012 If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Income tax deductions 2012   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Income tax deductions 2012 A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Income tax deductions 2012 You do not have to keep records to show the specific hours the area was used for business. Income tax deductions 2012 You can use the area occasionally for personal reasons. Income tax deductions 2012 However, a room you use only occasionally for business does not qualify for the deduction. Income tax deductions 2012 To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Income tax deductions 2012 You can compare the hours of business use in a week with the number of hours in a week (168). Income tax deductions 2012 Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Income tax deductions 2012 If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Income tax deductions 2012 Example 1. Income tax deductions 2012 Mary Lake used her basement to operate a daycare business for children. Income tax deductions 2012 She figures the business percentage of the basement as follows. Income tax deductions 2012 Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Income tax deductions 2012 During the other 12 hours a day, the family could use the basement. Income tax deductions 2012 She figures the percentage of time the basement was used for daycare as follows. Income tax deductions 2012 Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Income tax deductions 2012 25%           Mary can deduct 34. Income tax deductions 2012 25% of any direct expenses for the basement. Income tax deductions 2012 However, because her indirect expenses are for the entire house, she can deduct only 17. Income tax deductions 2012 13% of the indirect expenses. Income tax deductions 2012 She figures the percentage for her indirect expenses as follows. Income tax deductions 2012 Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Income tax deductions 2012 25% Percentage for indirect expenses 17. Income tax deductions 2012 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Income tax deductions 2012 In Part II, Mary figures her deductible expenses. Income tax deductions 2012 She uses the following information to complete Part II. Income tax deductions 2012 Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Income tax deductions 2012 (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Income tax deductions 2012 ) The expenses she paid for rent and utilities relate to her entire home. Income tax deductions 2012 Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Income tax deductions 2012 She shows the total of these expenses on line 22, column (b). Income tax deductions 2012 For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Income tax deductions 2012 Mary paid $500 to have the basement painted. Income tax deductions 2012 The painting is a direct expense. Income tax deductions 2012 However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Income tax deductions 2012 25% – line 6). Income tax deductions 2012 She enters $171 (34. Income tax deductions 2012 25% × $500) on line 19, column (a). Income tax deductions 2012 She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Income tax deductions 2012 This is less than her deduction limit (line 15), so she can deduct the entire amount. Income tax deductions 2012 She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Income tax deductions 2012 She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Income tax deductions 2012 Example 2. Income tax deductions 2012 Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Income tax deductions 2012 Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Income tax deductions 2012 Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Income tax deductions 2012 The basement and room are 60% of the total area of her home. Income tax deductions 2012 In figuring her expenses, 34. Income tax deductions 2012 25% of any direct expenses for the basement and room are deductible. Income tax deductions 2012 In addition, 20. Income tax deductions 2012 55% (34. Income tax deductions 2012 25% × 60%) of her indirect expenses are deductible. Income tax deductions 2012 Example 3. Income tax deductions 2012 Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Income tax deductions 2012 She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Income tax deductions 2012 During the other 12 hours a day, the family could still use the basement. Income tax deductions 2012 She figures the percentage of time the basement was used for business as follows. Income tax deductions 2012 Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Income tax deductions 2012 71%           Mary can deduct 35. Income tax deductions 2012 71% of any direct expenses for the basement. Income tax deductions 2012 However, because her indirect expenses are for the entire house, she can deduct only 17. Income tax deductions 2012 86% of the indirect expenses. Income tax deductions 2012 She figures the percentage for her indirect expenses as follows. Income tax deductions 2012 Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Income tax deductions 2012 71% Percentage for indirect expenses 17. Income tax deductions 2012 86% Meals. Income tax deductions 2012   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Income tax deductions 2012 Claim it as a separate deduction on your Schedule C (Form 1040). Income tax deductions 2012 You can never deduct the cost of food consumed by you or your family. Income tax deductions 2012 You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Income tax deductions 2012 However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Income tax deductions 2012 For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Income tax deductions 2012   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Income tax deductions 2012   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Income tax deductions 2012 If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Income tax deductions 2012 If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Income tax deductions 2012 Do not include payments or expenses for your own children if they are eligible for the program. Income tax deductions 2012 Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Income tax deductions 2012 Standard meal and snack rates. Income tax deductions 2012   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Income tax deductions 2012 For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Income tax deductions 2012 Family daycare is childcare provided to eligible children in the home of the family daycare provider. Income tax deductions 2012 The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Income tax deductions 2012 Eligible children are minor children receiving family daycare in the home of the family daycare provider. Income tax deductions 2012 Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Income tax deductions 2012 Eligible children do not include children who receive daycare services for personal reasons of the provider. Income tax deductions 2012 For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Income tax deductions 2012   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Income tax deductions 2012 You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Income tax deductions 2012 If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Income tax deductions 2012   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Income tax deductions 2012 If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Income tax deductions 2012 However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Income tax deductions 2012   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Income tax deductions 2012 The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Income tax deductions 2012 This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Income tax deductions 2012   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Income tax deductions 2012 These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Income tax deductions 2012     Table 3. Income tax deductions 2012 Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an