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IRS.gov Website
Publication 535
taxmap/pubs/p535-056.htm#en_us_publink1000209177

Miscellaneous Expenses(p43)

rule
In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct.
taxmap/pubs/p535-056.htm#en_us_publink1000209178

Advertising expenses.(p43)

rule
You generally can deduct reasonable advertising expenses that are directly related to your business activities. Generally, you cannot deduct amounts paid to influence legislation (i.e., lobbying). See Lobbying expenses, later.
You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U.S. Savings Bonds, or to participate in similar causes is usually deductible.
taxmap/pubs/p535-056.htm#en_us_publink1000209179

Anticipated liabilities.(p43)

rule
Anticipated liabilities or reserves for anticipated liabilities are not deductible. For example, assume you sold 1-year TV service contracts this year totaling $50,000. From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method.
taxmap/pubs/p535-056.htm#en_us_publink1000209180

Bribes and kickbacks.(p43)

rule
Engaging in the payment of bribes or kickbacks is a serious criminal matter. Such activity could result in criminal prosecution. Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law.
Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes.
taxmap/pubs/p535-056.htm#en_us_publink1000209181
Meaning of "generally enforced."(p43)
A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances.
taxmap/pubs/p535-056.htm#en_us_publink1000209182
Kickbacks.(p43)
A kickback is a payment for referring a client, patient, or customer. The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment.
For example, the Yard Corporation is in the business of repairing ships. It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted.
taxmap/pubs/p535-056.htm#en_us_publink1000209183
Form 1099-MISC.(p43)
It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. See Form 1099-MISC for more information.
taxmap/pubs/p535-056.htm#en_us_publink1000209184

Car and truck expenses.(p43)

rule
The costs of operating a car, truck, or other vehicle in your business are deductible. For more information on how to figure your deduction, see Publication 463.
taxmap/pubs/p535-056.htm#en_us_publink1000209185

Charitable contributions.(p43)

rule
Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. See the Instructions for Form 1120 for more information. Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040).
taxmap/pubs/p535-056.htm#en_us_publink1000209186

Example.(p43)

You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. The purpose of the ad was to encourage readers to buy your products. Your payment is not a charitable contribution. You can deduct it as an advertising expense.
taxmap/pubs/p535-056.htm#en_us_publink1000209187

Example.(p43)

You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Your payment is not a charitable contribution. You can deduct it as a business expense.
See Publication 526 for a discussion of donated inventory, including capital gain property.
taxmap/pubs/p535-056.htm#en_us_publink1000209188

Club dues and membership fees.(p43)

rule
Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.
taxmap/pubs/p535-056.htm#en_us_publink1000209189
Exception.(p43)
The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities.
taxmap/pubs/p535-056.htm#en_us_publink1000209190

Credit card convenience fees.(p43)

rule
Credit card companies charge a fee to businesses who accept their cards. This fee when paid or incurred by the business can be deducted as a business expense.
taxmap/pubs/p535-056.htm#en_us_publink1000209191

Damages recovered.(p43)

rule
Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. You must include this compensation in your income. However, you may be able to take a special deduction. The deduction applies only to amounts recovered for actual economic injury, not any additional amount. The deduction is the smaller of the following.
taxmap/pubs/p535-056.htm#en_us_publink1000209192

Demolition expenses or losses.(p43)

rule
Amounts paid or incurred to demolish a structure are not deductible. These amounts are added to the basis of the land where the demolished structure was located. Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of.
taxmap/pubs/p535-056.htm#en_us_publink1000209193

Education expenses.(p43)

rule
Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. See Education Expenses in chapter 2.
You can also deduct the cost of your own education (including certain related travel) related to your trade or business. You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law.
Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. This is true even if the education maintains or improves skills presently required in your business. For more information on education expenses, see Publication 970.
taxmap/pubs/p535-056.htm#en_us_publink1000209194

Franchise, trademark, trade name.(p44)

rule
If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are:
  1. Contingent on productivity, use, or disposition of the item,
  2. Payable at least annually for the entire term of the transfer agreement, and
  3. Substantially equal in amount (or payable under a fixed formula).
When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed.
A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area.
taxmap/pubs/p535-056.htm#en_us_publink1000209195

Impairment-related expenses.(p44)

rule
If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense.
You are disabled if you have either of the following.
The expense qualifies as a business expense if all the following apply.
taxmap/pubs/p535-056.htm#en_us_publink1000209196

Example.(p44)

You are blind. You must use a reader to do your work, both at and away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as a business expense.
taxmap/pubs/p535-056.htm#en_us_publink1000209197

Internet-related expenses.(p44)

rule
Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. If you are starting a business you may have to amortize these expenses as start-up costs. For more information about amortizing start-up and organizational costs, see chapter 8.
taxmap/pubs/p535-056.htm#en_us_publink1000209198

Interview expense allowances.(p44)

rule
Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. You can deduct the reimbursements as a business expense. However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment.
taxmap/pubs/p535-056.htm#en_us_publink1000209199

Legal and professional fees.(p44)

rule
Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. However, usually legal fees you pay to acquire business assets are not deductible. These costs are added to the basis of the property.
Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. The result is the portion of the invoice attributable to business expenses. The portion attributable to personal matters is the difference between the total amount and the business portion (computed above).
Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. See Publication 529, Miscellaneous Deductions.
taxmap/pubs/p535-056.htm#en_us_publink1000209200
Tax preparation fees.(p44)
The cost of hiring a tax professional, such as a C.P.A., to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions.
You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor.
taxmap/pubs/p535-056.htm#en_us_publink1000209201

Licenses and regulatory fees.(p44)

rule
Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Some licenses and fees may have to be amortized. See chapter 8 for more information.
taxmap/pubs/p535-056.htm#en_us_publink1000209202

Lobbying expenses.(p44)

rule
Generally, lobbying expenses are not deductible. Lobbying expenses include amounts paid or incurred for any of the following activities.
Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. For information on making this allocation, see section 1.162-28 of the regulations.
You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply.
If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues.
taxmap/pubs/p535-056.htm#en_us_publink1000209203
Covered executive branch official.(p44)
For purposes of this discussion, a covered executive branch official is any of the following.
  1. The President.
  2. The Vice President.
  3. Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office.
  4. Any individual who:
    1. Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code,
    2. Has been designated by the President as having Cabinet-level status, or
    3. Is an immediate deputy of an individual listed in item (a) or (b).
taxmap/pubs/p535-056.htm#en_us_publink1000209204
Exceptions to denial of deduction.(p44)
The general denial of the deduction does not apply to the following.
taxmap/pubs/p535-056.htm#en_us_publink1000209205

Moving machinery.(p45)

rule
Generally, the cost of moving machinery from one city to another is a deductible expense. So is the cost of moving machinery from one plant to another, or from one part of your plant to another. You can deduct the cost of installing the machinery in the new location. However, you must capitalize the costs of installing or moving newly purchased machinery.
taxmap/pubs/p535-056.htm#en_us_publink1000209206

Outplacement services.(p45)

rule
The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. are deductible.
The costs of outplacement services may cover more than one deduction category. For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service.
For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B.
taxmap/pubs/p535-056.htm#en_us_publink1000209207

Penalties and fines.(p45)

rule
Penalties paid for late performance or nonperformance of a contract are generally deductible. For instance, you own and operate a construction company. Under a contract, you are to finish construction of a building by a certain date. Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. These additional costs are deductible business expenses.
On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. These fines or penalties include the following amounts.
Examples of nondeductible penalties and fines include the following.
A fine or penalty does not include any of the following.
taxmap/pubs/p535-056.htm#en_us_publink1000209208

Political contributions.(p45)

rule
Contributions or gifts paid to political parties or candidates are not deductible. In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible.
taxmap/pubs/p535-056.htm#en_us_publink1000209209
Indirect political contributions.(p45)
You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Examples of nondeductible expenses include the following.
taxmap/pubs/p535-056.htm#en_us_publink1000209210

Repairs.(p45)

rule
The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. Otherwise, the cost must be capitalized and depreciated. See Form 4562 and its instructions for how to compute and claim the depreciation deduction.
The cost of repairs includes the costs of labor, supplies, and certain other items. The value of your own labor is not deductible. Examples of repairs include:
taxmap/pubs/p535-056.htm#en_us_publink1000209211

Repayments.(p45)

rule
If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it.
taxmap/pubs/p535-056.htm#en_us_publink1000209212
Type of deduction.(p45)
The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040).
If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation.
taxmap/pubs/p535-056.htm#en_us_publink1000209213
Repayment—$3,000 or less.(p45)
If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it.
taxmap/pubs/p535-056.htm#en_us_publink1000209214
Repayment—over $3,000.(p45)
If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. However, you can instead choose to take a tax credit for the year of repayment if you included the income under a "claim of right." This means that at the time you included the income, it appeared that you had an unrestricted right to it. If you qualify for this choice, figure your tax under both methods and use the method that results in less tax.
taxmap/pubs/p535-056.htm#en_us_publink1000209215
Method 1.(p45)
Figure your tax for 2012 claiming a deduction for the repaid amount.
taxmap/pubs/p535-056.htm#en_us_publink1000209216
Method 2.(p45)
Figure your tax for 2012 claiming a credit for the repaid amount. Follow these steps.
  1. Figure your tax for 2012 without deducting the repaid amount.
  2. Refigure your tax from the earlier year without including in income the amount you repaid in 2012.
  3. Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the amount of your credit.
  4. Subtract the answer in (3) from the tax for 2012 figured without the deduction (step 1).
If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction.
If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write "I.R.C. 1341" next to line 71.
taxmap/pubs/p535-056.htm#en_us_publink1000209217

Example.(p45)

For 2011, you filed a return and reported your income on the cash method. In 2012, you repaid $5,000 included in your 2011 gross income under a claim of right. Your filing status in 2012 and 2011 is single. Your income and tax for both years are as follows:
  2011
With Income
2011
Without Income
Taxable Income$15,000$10,000
Tax$ 1,829$ 1,079
  2012
Without Deduction
2012
With Deduction
Taxable Income$49,950$44,950
Tax $8,524 $7,274
Your tax under Method 1 is $7,274. Your tax under Method 2 is $7,774, figured as follows:
Tax previously determined for 2011$ 1,829
Less: Tax as refigured− 1,079
Decrease in 2011 tax$ 750
Regular tax liability for 2012$8,524
Less: Decrease in 2011 tax− 750
Refigured tax for 2012 $ 7,774
Because you pay less tax under Method 1, you should take a deduction for the repayment in 2012.
taxmap/pubs/p535-056.htm#en_us_publink1000209220
Repayment does not apply.(p46)
This discussion does not apply to the following.
taxmap/pubs/p535-056.htm#en_us_publink1000209221
Year of deduction (or credit).(p46)
If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues.
taxmap/pubs/p535-056.htm#en_us_publink1000209222

Subscriptions.(p46)

rule
Subscriptions to professional, technical, and trade journals that deal with your business field are deductible.
taxmap/pubs/p535-056.htm#en_us_publink1000209223

Supplies and materials.(p46)

rule
Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year.
If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met.
You can also deduct the cost of books, professional instruments, equipment, etc., if you normally use them within a year. However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. For more information regarding depreciation see Publication 946, How To Depreciate Property.
taxmap/pubs/p535-056.htm#en_us_publink1000209224

Utilities.(p46)

rule
Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. However, any part due to personal use is not deductible.
taxmap/pubs/p535-056.htm#en_us_publink1000209225
Telephone.(p46)
You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. 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.