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Instructions for Schedule C (Form 1040)
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1061

Part II. Expenses(p5)

rule
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1071
Capitalizing costs of property.(p5)
rule
If you produced real or tangible personal property or acquired property for resale, certain expenses attributable to the property generally must be included in inventory costs or capitalized. In addition to direct costs, producers of inventory property generally must also include part of certain indirect costs in their inventory. Purchasers of personal property acquired for resale must include part of certain indirect costs in inventory only if the average annual gross receipts for the 3 prior tax years exceed $10 million. Also, you must capitalize part of the indirect costs that benefit real or tangible personal property constructed for use in a trade or business, or noninventory property produced for sale to customers. Reduce the amounts on lines 8 through 26 and Part V by amounts capitalized. See Pub. 538 for a discussion of uniform capitalization rules.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1099
Exception for certain producers.(p5)
Producers who account for inventoriable items in the same manner as materials and supplies that are not incidental can currently deduct expenditures for direct labor and all indirect costs that would otherwise be included in inventory costs. See Part III. Cost of Goods Sold for more details.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1114
Exception for creative property.(p6)
If you are a freelance artist, author, or photographer, you may be exempt from the capitalization rules. However, your personal efforts must have created (or reasonably be expected to create) the property. This exception does not apply to any expense related to printing, photographic plates, motion picture films, video tapes, or similar items. These expenses are subject to the capitalization rules. For details, see Uniform Capitalization Rules in Pub. 538.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1136

Line 9(p6)

rule
You can deduct the actual expenses of operating your car or truck or take the standard mileage rate. This is true even if you used your vehicle for hire (such as a taxicab). You must use actual expenses if you used five or more vehicles simultaneously in your business (such as in fleet operations). You cannot use actual expenses for a leased vehicle if you previously used the standard mileage rate for that vehicle.
You can take the standard mileage rate for 2013 only if you:
If you take the standard mileage rate:
Do not deduct depreciation, rent or lease payments, or your actual operating expenses.
If you deduct actual expenses:
For details, see chapter 4 of Pub. 463.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1229
Information on your vehicle.(p6)
rule
If you claim any car and truck expenses, you must provide certain information on the use of your vehicle by completing one of the following.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1259

Line 11(p6)

rule
Enter the total cost of contract labor for the tax year. Contract labor includes payments to persons you do not treat as employees (for example, independent contractors) for services performed for your trade or business. Do not include contract labor deducted elsewhere on your return, such as contract labor includible on line 17, 21, 26, or 37. Also, do not include salaries and wages paid to your employees; instead, see Line 26, later.
You must file Form 1099-MISC, Miscellaneous Income, to report contract labor payments of $600 or more during the year. See the Instructions for Form 1099-MISC for details.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1284

Line 12(p6)

rule
Enter your deduction for depletion on this line. If you have timber depletion, attach Form T (Timber). See chapter 9 of Pub. 535 for details.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1302

Line 13(p6)

rule
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1307
Depreciation and section 179 expense deduction.(p6)
rule
Depreciation is the annual deduction allowed to recover the cost or other basis of business or investment property having a useful life substantially beyond the tax year. You can also depreciate improvements made to leased business property. However, stock in trade, inventories, and land are not depreciable. Depreciation starts when you first use the property in your business or for the production of income. It ends when you take the property out of service, deduct all your depreciable cost or other basis, or no longer use the property in your business or for the production of income. You can also elect under section 179 to expense part or all of the cost of certain property you bought in 2013 for use in your business. See the Instructions for Form 4562 and Pub. 946 to figure the amount to enter on line 13.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1341
When to attach Form 4562.(p6)
rule
You must complete and attach Form 4562 only if you are claiming:
If you acquired depreciable property for the first time in 2013, see Pub. 946.
Listed property generally includes but is not limited to:
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1400
Exceptions.(p6)
rule
Listed property does not include photographic, phonographic, communication, or video equipment used exclusively in your trade or business or at your regular business establishment. It also does not include any computer or peripheral equipment used exclusively at a regular business establishment and owned or leased by the person operating the establishment. For purposes of these exceptions, a portion of your home is treated as a regular business establishment only if that portion meets the requirements under section 280A(c)(1) for deducting expenses for the business use of your home.
See Line 6, earlier, if the business use percentage of any listed property dropped to 50% or less in 2013.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1424

Line 14(p6)

rule
Deduct contributions to employee benefit programs that are not an incidental part of a pension or profit-sharing plan included on line 19. Examples are accident and health plans, group-term life insurance, and dependent care assistance programs. If you made contributions on your behalf as a self-employed person to a dependent care assistance program, complete Form 2441, Parts I and III, to figure your deductible contributions to that program.
You cannot deduct contributions you made on your behalf as a self-employed person for group-term life insurance.
Do not include on line 14 any contributions you made on your behalf as a self-employed person to an accident and health plan. However, you may be able to deduct on Form 1040, line 29, or Form 1040NR, line 29, the amount you paid for health insurance on behalf of yourself, your spouse, and dependents, even if you do not itemize your deductions. See the instructions for Form 1040, line 29, or Form 1040NR, line 29, for details.
You must reduce your line 14 deduction by the amount of any credit for small employer health insurance premiums determined on Form 8941. See Form 8941 and its instructions to determine which expenses are eligible for the credit.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1462

Line 15(p7)

rule
Deduct premiums paid for business insurance on line 15. Deduct on line 14 amounts paid for employee accident and health insurance. Do not deduct amounts credited to a reserve for self-insurance or premiums paid for a policy that pays for your lost earnings due to sickness or disability. For details, see chapter 6 of Pub. 535.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1483

Lines 16a and 16b(p7)

rule
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1493
Interest allocation rules.(p7)
rule
The tax treatment of interest expense differs depending on its type. For example, home mortgage interest and investment interest are treated differently. Interest allocation rules require you to allocate (classify) your interest expense so it is deducted (or capitalized) on the correct line of your return and receives the right tax treatment. These rules could affect how much interest you are allowed to deduct on Schedule C or C-EZ.
Generally, you allocate interest expense by tracing how the proceeds of the loan were used. See chapter 4 of Pub. 535 for details.
If you paid interest on a debt secured by your main home and any of the proceeds from that debt were used in connection with your trade or business, see chapter 4 of Pub. 535 to figure the amount that is deductible on Schedule C or C-EZ.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1517
How to report.(p7)
rule
If you have a mortgage on real property used in your business (other than your main home), enter on line 16a the interest you paid for 2013 to banks or other financial institutions for which you received a Form 1098 (or similar statement). If you did not receive a Form 1098, enter the interest on line 16b.
If you paid more mortgage interest than is shown on Form 1098, see chapter 4 of Pub. 535 to find out if you can deduct the additional interest. If you can, include the amount on line 16a. Attach a statement to your return explaining the difference and enter See attached in the margin next to line 16a.
If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on the mortgage and the other person received the Form 1098, include your share of the interest on line 16b. Attach a statement to your return showing the name and address of the person who received the Form 1098. In the margin next to line 16b, enter See attached.
If you paid interest in 2013 that also applies to future years, deduct only the part that applies to 2013.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1572

Line 17(p7)

rule
Include on this line fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business.
Include fees for tax advice related to your business and for preparation of the tax forms related to your business. Also include expenses incurred in resolving asserted tax deficiencies relating to your business.
For more information, see Pub. 334 or 535.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1593

Line 18(p7)

rule
Include on this line your expenses for
office supplies and postage.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1604

Line 19(p7)

rule
Enter your deduction for contributions to a pension, profit-sharing, or annuity plan, or plan for the benefit of your employees. If the plan included you as a self-employed person, enter contributions made as an employer on your behalf on Form 1040, line 28, or Form 1040NR, line 28, not on Schedule C.
In most cases, you must file the applicable form listed below if you maintain a pension, profit-sharing, or other funded-deferred compensation plan. The filing requirement is not affected by whether or not the plan qualified under the Internal Revenue Code, or whether or not you claim a deduction for the current tax year. There is a penalty for failure to timely file these forms.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1622
Form 5500-EZ.(p7)
rule
File this form if you have a one-participant retirement plan that meets certain requirements. A one-participant plan is a plan that covers only you (or you and your spouse).
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1631
Form 5500-SF.(p7)
rule
File this form electronically with the Department of Labor (at www.efast.dol.gov) if you have a small plan (fewer than 100 participants in most cases) that meets certain requirements.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1639
Form 5500.(p7)
rule
File this form electronically with the Department of Labor (at www.efast.dol.gov) for a plan that does not meet the requirements for filing Form 5500-EZ or Form 5500-SF.
For details, see Pub. 560.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1653

Lines 20a and 20b(p7)

rule
If you rented or leased vehicles, machinery, or equipment, enter on line 20a the business portion of your rental cost. But if you leased a vehicle for a term of 30 days or more, you may have to reduce your deduction by an amount called the inclusion amount. See Leasing a Car in chapter 4 of Pub. 463 to figure this amount.
Enter on line 20b amounts paid to rent or lease other property, such as office space in a building.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1684

Line 21(p7)

rule
Deduct the cost of incidental repairs and maintenance that do not add to the property's value or appreciably prolong its life. Do not deduct the value of your own labor. Do not deduct amounts spent to restore or replace property; they must be capitalized.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1702

Line 22(p8)

rule
In most cases, you can deduct the cost of materials and supplies only to the extent you actually consumed and used them in your business during the tax year (unless you deducted them in a prior tax year). However, if you had incidental materials and supplies on hand for which you kept no inventories or records of use, you can deduct the cost of those you actually purchased during the tax year, provided that method clearly reflects income.
You can also deduct the cost of books, professional instruments, equipment, etc., if you normally use them within a year. However, if their usefulness extends substantially beyond a year, you must generally recover their costs through depreciation.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1722

Line 23(p8)

rule
You can deduct the following taxes and licenses on this line.
Do not deduct the following.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1832

Line 24a(p8)

rule
Enter your expenses for lodging and transportation connected with overnight travel for business while away from your tax home. In most cases, your tax home is your main place of business, regardless of where you maintain your family home. You cannot deduct expenses paid or incurred in connection with employment away from home if that period of employment exceeds 1 year. Also, you cannot deduct travel expenses for your spouse, your dependent, or any other individual unless that person is your employee, the travel is for a bona fide business purpose, and the expenses would otherwise be deductible by that person.
Do not include expenses for meals and entertainment on this line. Instead, see Line 24b, later.
Instead of keeping records of your actual incidental expenses, you can use an optional method for deducting incidental expenses only if you did not pay or incur meal expenses on a day you were traveling away from your tax home. The amount of the deduction is $5 a day. Incidental expenses include fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships, and hotel servants in foreign countries. They do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, or the costs of telegrams or telephone calls. You cannot use this method on any day that you use the standard meal allowance (as explained in Line 24b, later).
You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless the meeting is directly related to your trade or business and it is as reasonable for the meeting to be held outside the North American area as within it. These rules apply to both employers and employees. Other rules apply to luxury water travel.
For details on travel expenses, see chapter 1 of Pub. 463.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1875

Line 24b(p8)

rule
Enter your total deductible business meal and entertainment expenses. This includes expenses for meals while traveling away from home for business and for meals that are business-related entertainment.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1889
Deductible expenses.(p8)
rule
Business meal expenses are deductible only if they are (a) directly related to or associated with the active conduct of your trade or business, (b) not lavish or extravagant, and (c) incurred while you or your employee is present at the meal.
You cannot deduct any expense paid or incurred for a facility (such as a yacht or hunting lodge) used for any activity usually considered entertainment, amusement, or recreation.
Also, you cannot deduct membership dues for any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion. But it does not include civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards, unless a principal purpose of the organization is to entertain, or provide entertainment facilities for, members or their guests.
There are exceptions to these rules as well as other rules that apply to skybox rentals and tickets to entertainment events. See chapters 1 and 2 of Pub. 463.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1911
Standard meal allowance.(p9)
rule
Instead of deducting the actual cost of your meals while traveling away from home, you can use the standard meal allowance for your daily meals and incidental expenses. Under this method, you deduct a specified amount, depending on where you travel, instead of keeping records of your actual meal expenses. However, you must still keep records to prove the time, place, and business purpose of your travel.
The standard meal allowance is the federal M&IE rate. You can find these rates on the Internet at www.gsa.gov. Click on Per Diem Rates for links to locations inside and outside the continental United States.
See chapter 1 of Pub. 463 for details on how to figure your deduction using the standard meal allowance, including special rules for partial days of travel.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1937
Amount of deduction.(p9)
rule
In most cases, you can deduct only 50% of your business meal and entertainment expenses, including meals incurred while away from home on business. However, for individuals subject to the Department of Transportation (DOT) hours of service limits, that percentage is increased to 80% for business meals consumed during, or incident to, any period of duty for which those limits are in effect. Individuals subject to the DOT hours of service limits include the following.
However, you can fully deduct meals, incidentals, and entertainment furnished or reimbursed to an employee if you properly treat the expense as wages subject to withholding. You can also fully deduct meals, incidentals, and entertainment provided to a nonemployee to the extent the expenses are includible in the gross income of that person and reported on Form 1099-MISC. See Pub. 535 for details and other exceptions.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1971
Daycare providers.(p9)
rule
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. See Pub. 587 for details, including recordkeeping requirements.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1983

Line 25(p9)

rule
Deduct utility expenses only for your trade or business.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e1997
Local telephone service.(p9)
rule
If you used your home phone for business, do not deduct the base rate (including taxes) of the first phone line into your residence. But you can deduct any additional costs you incurred for business that are more than the base rate of the first phone line. For example, if you had a second line, you can deduct the business percentage of the charges for that line, including the base rate charges.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e2007

Line 26(p9)

rule
Enter the total salaries and wages for the tax year. Do not include salaries and wages deducted elsewhere on your return or amounts paid to yourself. Reduce your deduction by the amounts claimed on:
caution
If you provided taxable fringe benefits to your employees, such as personal use of a car, do not deduct as wages the amount applicable to depreciation and other expenses claimed elsewhere.
In most cases, you are required to file Form W-2, Wage and Tax Statement, for each employee. See the General Instructions for Forms W-2 and W-3.
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e2066

Line 30(p9)

rule
taxmap/instr/i1040sc-011.htm#en_us_publink24329wd0e2076
Business use of your home.(p9)
rule
You may be able to deduct certain expenses for business use of your home, subject to limitations. To claim a deduction for business use of your home, you can use Form 8829 or you can elect to determine the amount of the deduction using a simplified method.
For additional information about claiming this deduction, see Pub. 587.
taxtip
If you are not using the simplified method to determine the amount of expenses you may deduct for business use of a home, do not complete the additional entry spaces on line 30 for total square footage of your home and of the part of the home used for business. Just include the amount from line 35 of your Form 8829 on line 30.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308050
Simplified method.(p9)
rule
The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will figure your deduction by multiplying the area (measured in square feet) used regularly and exclusively for business, regularly for daycare, or regularly for storage of inventory or product samples, by $5. The area you use to figure your deduction cannot exceed 300 square feet. You cannot use the simplified method to figure a deduction for rental use of your home.
taxmap/instr/i1040sc-011.htm#en_us_publink1000195949
pencil

Simplified Method Worksheet

1.Enter the amount of the gross income limitation. See Instructions for the Simplified Method Worksheet1.
     
2.Allowable square footage for the qualified business use. Do not enter more than 300 square feet. See Instructions for the Simplified Method Worksheet 2.
     
3.Simplified method amount  
 a.Maximum allowable amount3a.$5
 b.For daycare facilities not used exclusively for business, enter the decimal amount from the Daycare Facility Worksheet; otherwise, enter 1.0 3b.
 c.Multiply line 3a by line 3b and enter result to 2 decimal places3c.
     
4.Multiply line 2 by line 3c4.
     
5.Allowable expenses using the simplified method. Enter the smaller of line 1 or line 4 here and include that amount on Schedule C, line 30. If zero or less, enter -0- 5.
     
6.Carryover of unallowed expenses from 2012 that are not allowed in 2013.  
 a.Operating expenses. Enter the amount from your 2012 Form 8829, line 426a.
 b.Excess casualty losses and depreciation. Enter the amount from your 2012 Form 8829, line 436b.
Instructions for the Simplified Method Worksheet
  
Use this worksheet to figure the amount of expenses you may deduct for a qualified business use of a home if you are electing to use the simplified method for that home. If you are not electing to use the simplified method, use Form 8829.
  
Line 1. If all gross income from your trade or business is from this qualified business use of your home, figure your gross income limitation as follows.
  
A. Enter the amount from Schedule C, line 29
B. Enter any gain derived from the business use of your home and shown on Form 8949 (and included on Schedule D) or Form 4797
C. Add lines A and B
D. Enter the loss (as a positive number) shown on Form 8949 (and included on Schedule D) or Form 4797 that are allocable to the business, but not allocable to the use of the home
E. Gross income limitation. Subtract line D from line C. Enter the result here and on line 1
  
If some of the income is from a place of business other than your home, you must first determine the part of your gross income (Schedule C, line 7, and gains from Form 8949, Schedule D, and Form 4797) from the business use of your home. In making this determination, consider the amount of time you spend at each location as well as other facts. After determining the part of your gross income from the business use of your home, subtract from that amount the total expenses shown on Schedule C, line 28, plus any losses shown on Form 8949 (and included in Schedule D) or Form 4797 that are allocable to the business in which you use your home but that are not allocable to the use of the home. Enter the result on Line 1.
  
Note. If you had more than one home in which you conducted this business during the year, include only the income earned and the deductions attributable to that income during the period you owned the home for which you elected to use the simplified method.
  
Line 2. If you used the same area for the entire year, enter the smaller of the square feet you actually used and 300. If you and your spouse conducted the business as a qualified joint venture, split the square feet between you and your spouse in the same manner you split your other tax attributes. If you shared space with someone else, used the home for business for only part of the year, or the area you used changed during the year, see Figuring your allowable expenses for business use of the home before entering an amount on this line. Do not enter more than 300 square feet on this line.
  
Line 3b. If your qualified business use is providing daycare, you may need to account for the time that you used the same part of your home for other purposes. If you used the part of your home exclusively and regularly for providing daycare, enter 1.0 on line 3b. If you did not use the part of your home exclusively for providing daycare, complete the Daycare Facility Worksheet to figure what number to enter on line 3b.
  
Line 6. Since you are using the simplified method this year, you cannot deduct the amounts you entered on lines 6a and 6b this year. If you file Form 8829 next year for your qualified business use of this home, you will be able to include these expenses when you figure your deduction.
taxmap/instr/i1040sc-011.htm#en_us_publink1000195951
pencil

Daycare Facility Worksheet (for simplified method)

1.Multiply days used for daycare during the year by hours used per day1.
     
2.Total hours available for use during the year. See Instructions for the Daycare Facility Worksheet2.
     
3.Divide line 1 by line 2. Enter the result as a decimal amount here and on line 3b of the Simplified Method Worksheet3.
Instructions for the Daycare Facility Worksheet
  
Use this worksheet to figure the percentage to use on line 3b of the Simplified Method Worksheet. If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate before figuring your deduction using the simplified method.
  
taxtip If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to complete this worksheet. This worksheet is only needed if you did not use the allowable area exclusively for daycare.
  
Line 1. Enter the total number of hours the facility was used for daycare during the year.
  
Example. Your home is used Monday through Friday for 12 hours per day for 250 days during the year. It is also used on 50 Saturdays for 8 hours a day. Enter 3,400 hours on line 4 (3,000 hours for weekdays plus 400 hours for Saturdays).
  
Line 2. If you used your home for daycare during the entire year, multiply 365 days (366 for a leap year) by 24 hours, and enter the result.
If you started or stopped using your home for daycare during the year, you must prorate the number of hours based on the number of days the home was available for daycare. Multiply 24 hours by the number of days available and enter that result.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308052
Electing to use the simplified method.(p9)
You choose whether or not to use the simplified method each taxable year. Make the election by using the simplified method to figure the deduction for the qualified business use of a home on a timely-filed, original federal income tax return for that year. An election for a taxable year, once made, is irrevocable. 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.
If you share your home with someone else who uses the home for a separate business that qualifies for this deduction, each of you may make your own election, but not for the same portion of the home.
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 your home. You are limited to a maximum of 300 square feet for all of the businesses you conduct in your home that qualify for this deduction. Allocate the actual square footage used (up to the maximum 300 square feet) among your qualified business uses in any reasonable manner you choose, but you may not allocate more square feet to a qualified business use than you actually use in that business.
caution
If you used your home for more than one business, you will need to file a separate Schedule C for each business. Do not combine your deductions for each business use on a single Schedule C.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308053
Business use of more than one home.(p10)
You may have used more than one home in your business (for example, you may have moved during the year). If you used more than one home for the same business during 2013, you may elect to use the simplified method for only one home; you must file a Form 8829 to claim a business use of the home deduction for any additional home.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308054
Other requirements must still be met.(p11)
You must still meet all the use requirements to claim a deduction for business use of the home. The simplified method is only an alternative to the calculation, allocation, and substantiation of actual expenses. The simplified method is not an alternative to the exclusivity and other tests that must be met in order to qualify for this deduction. For more information about qualifying business uses, see Qualifying for a Deduction in Pub. 587.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308055
Gross income limitation.(p11)
The amount of your deduction is still limited to the gross income derived from qualified business use of the home reduced by the business deductions that are not related to your use of the home. If this limitation reduces the amount of your deduction, you cannot carryover the difference to another tax year.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308056
Carryover of actual expenses from Form 8829.(p11)
If you used Form 8829 in a prior year, and you had actual expenses that you could carryover to the next year, you cannot claim those expenses if you are using the simplified method. Instead, the actual expenses from Form 8829 that were not allowed will be carried over to the next year that you file Form 8829 for that business use of that home.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308057
Depreciation of home.(p11)
You cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of your home that is used in a qualified business use if you figure the deduction for the business use of your home using the simplified method. The depreciation deduction allowable for that portion of the home for that taxable year is deemed to be zero.
taxtip
Although you cannot deduct any depreciation or section 179 expense for the portion of your home that is a qualified business use because you elect to use the simplified method, you may still claim depreciation or the section 179 expense deduction on other assets (for example, furniture and equipment) used in the qualified business use of your home.
taxmap/instr/i1040sc-011.htm#en_us_publink1000308058
Figuring your allowable expenses for business use of the home.(p11)
rule
You will figure the deduction using Form 8829 or the simplified method worksheet, or both.
caution
You may not use the simplified method and also file Form 8829 for the same qualified business use of the same home.
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Using Form 8829.(p11)
Use Form 8829 to figure and claim this deduction for a home if you are not or cannot use the simplified method for that home. For information about claiming this deduction using Form 8829, see the Instructions for Form 8829 and Pub. 587.
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Using the simplified method.(p11)
Use the Simplified Method Worksheet in these instructions to figure your deduction for a qualified business use of your home if you are electing to use the simplified method for that home.
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Shared use (for simplified method only).(p11)
If you share your home with someone else who uses the home for a separate business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. You must allocate the shared space between you and the other person in a reasonable manner.
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Example.(p11)
Kristin and Lindsey are roommates. Kristin uses 300 square feet of their home for a qualified business use. Lindsey uses 200 square feet of their home for a separate qualified business use. The qualified business uses share 100 square feet. 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. If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet.
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Part-year use or area changes (for simplified method only).(p12)
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. 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.
When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month.
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Example 1.(p12)
Andy files his federal income tax return on a calendar year basis. On July 20, he began using 400 square feet of his home for a qualified business use. He continued to use the 400 square feet until the end of the year. Andy's average monthly allowable square footage is 125 square feet (300 square feet for 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)).
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Example 2.(p12)
Roland files his federal income tax return on a calendar year basis. On April 20, he began using 100 square feet of his home for a qualified business use. On August 5, he expanded the area of his qualified use to 350 square feet. Roland continued to use the 350 square feet until the end of the year. Roland's average monthly allowable square footage is 150 square feet (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)).
Once you have determined your adjusted area, enter the result on line 2 of the Simplified Method Worksheet.
taxtip
You can use the Area Adjustment Worksheet in Pub. 587 to help you determine the adjusted area to enter on line 2 of the Simplified Method Worksheet.
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Reporting your expenses for business use of the home.(p12)
rule
If you did not use the simplified method, include the amount from line 35 of Form 8829 on line 30 of the Schedule C you are filing for that business.
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If you used the simplified method.(p12)
If you elect to use the simplified method for the business use of a home, complete the additional entry spaces on line 30 for that home only. Include the amount from line 5 of the Simplified Method Worksheet on line 30.
If you itemize your deductions on Schedule A, you may deduct your mortgage interest, real estate taxes, and casualty losses on Schedule A as if you did not use your home for business. You cannot deduct any excess mortgage interest or excess casualty losses on Schedule C for this home.
Use Part II of Schedule C to deduct business expenses that are unrelated to the qualified business use of the home (for example, expenses for advertising, wages, or supplies, or depreciation of equipment or furniture).
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Deduction figured on multiple forms.(p12)
If you used more than one home for a business during the year, you may use a Form 8829 for each home or you may use the simplified method for one home and Form 8829 for any other home. Combine the amount you figured using the simplified method and the amounts you figured on your Forms 8829, and then enter the total on line 30 of the Schedule C you are filing for that business.
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Line 31(p12)

rule
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Figuring your net profit or allowable loss.(p12)
rule
If your expenses (including the expenses you report on line 30) are more than your gross income, do not enter your loss on line 31 until you have applied the excess farm loss rules, the at-risk rules, and the passive activity loss rules. To apply these rules, follow the instructions in Excess farm loss rules, Line 32 in these instructions, and the Instructions for Form 8582. After applying those rules, the amount on line 31 will be your allowable loss, and it may be smaller than the amount you figured by subtracting line 30 from line 29.
If your gross income is more than your expenses (including the expenses you report on line 30), and you do not have prior year unallowed passive activity losses, subtract line 30 from line 29. The result is your net profit.
If your gross income is more than your expenses (including the expenses you report on line 30), and you have prior year unallowed passive activity losses, do not enter your net profit on line 31 until you have figured the amount of prior year unallowed passive activity losses you may claim this year for this activity. Use Form 8582 to figure the amount of prior year unallowed passive activity losses you may include on line 31. Make sure to indicate that you are including prior year passive activity losses by entering "PAL" to the left of the entry space.
If you checked the "No" box on line G, see the Instructions for Form 8582; you may need to include information from this schedule on that form, even if you have a net profit.
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Rental real estate activity. (p12)
Unless you are a qualifying real estate professional, a rental real estate activity is a passive activity, even if you materially participated in the activity. If you have a loss, you may need to file Form 8582 to figure your allowable loss. See the Instructions for Form 8582.
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Excess farm loss rules. (p12)
If your Schedule C activity includes processing a farm commodity as part of your farming business, your deductible loss from that activity may be limited if you received certain subsidies. See the Instructions for Schedule F for a list of those subsidies. Use one of the worksheets in the Schedule F instructions to determine if you have an excess farm loss. See the Instructions for Schedule F for more details on how to complete the worksheets.
You must figure and apply your excess farm loss before figuring any limitations to your loss due to the at-risk rules or the passive activity loss rules. Reduce your loss by your excess farm loss before applying the at-risk rules and passive activity loss rules.
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Reporting your net profit or allowable loss.(p13)
rule
Once you have figured your net profit or allowable loss, report it as follows.
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Individuals.(p13)
Enter your net profit or allowable loss on line 31 and include it on Form 1040, line 12. Also, include your net profit or allowable loss on Schedule SE, line 2. However, if you are a statutory employee or notary public, see Statutory employees or Notary public, later.
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Nonresident aliens.(p13)
Enter your net profit or allowable loss on line 31 and include it on Form 1040NR, line 13. You should also include this amount on Schedule SE, line 2 if you are covered under the U.S. social security system due to an international social security agreement currently in effect. See the Instructions for Schedule SE (Form 1040) for information on international social security agreements. However, if you are a statutory employee or notary public, see Statutory employees or Notary public, later.
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Trusts and estates.(p13)
Enter the net profit or allowable loss on line 31 and include it on Form 1041, line 3.
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Statutory employees.(p13)
Enter your net profit or allowable loss on line 31 and include it on Form 1040, line 12, or on Form 1040NR, line 13. However, do not report this amount on Schedule SE, line 2. If you were a statutory employee and you are required to file Schedule SE because of other self-employment income, see the Instructions for Schedule SE.
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Notary public.(p13)
Do not enter your net profit from line 31 on Schedule SE, line 2, unless you are required to file Schedule SE because you have other self-employment income. See the Instructions for Schedule SE.
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Community income.(p13)
rule
If you and your spouse had community income and are filing separate returns, see the Instructions for Schedule SE before figuring self-employment tax.
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Earned income credit.(p13)
rule
If you have a net profit on line 31, this amount is earned income and may qualify you for the earned income credit (EIC).
caution
To figure your EIC, use the instructions for Form 1040, lines 64a and 64b. Complete all applicable steps plus Worksheet B. If you are required to file Schedule SE, remember to enter one-half of your self-employment tax in Part 1, line 1d, of Worksheet B.
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Line 32(p13)

rule
taxtip
You do not need to complete line 32 if line 7 is more than the total of lines 28 and 30.
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At-risk rules.(p13)
rule
In most cases, if you have a business loss and amounts invested in the business for which you are not at risk, you must complete Form 6198 to figure your allowable loss. The at-risk rules generally limit the amount of loss (including loss on the disposition of assets) you can claim to the amount you could actually lose in the business.
Check box 32b if you have amounts invested in this business for which you are not at risk, such as the following.
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Figuring your allowable loss.(p13)
rule
Before determining your allowable loss, you must check box 32a or 32b to determine if the loss from your business activity is limited by the at-risk rules. Follow the instructions below that apply to your box 32 activity.
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All investment is at risk.(p13)
If all amounts are at risk in this business, check box 32a. If you answered Yes on line G, your remaining loss (after applying the excess farm loss rules) is your allowable loss. The at-risk rules and the passive activity loss rules do not apply. See Line 31, earlier, for how to report your allowable loss.
But if you answered No on line G, you may need to complete Form 8582 to figure your allowable loss to enter on line 31. See the Instructions for Form 8582 for details.
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Some investment is not at risk.(p13)
If some investment is not at risk, check box 32b; the at-risk rules apply to your loss. Be sure to attach Form 6198 to your return.
If you answered "Yes" on line G, complete Form 6198 to figure the allowable loss to enter on line 31. The passive activity loss rules do not apply. See Line 31, earlier for how to report your allowable loss.
But if you answered "No" on line G, the passive activity loss rules may apply. First complete Form 6198 to figure the amount of your profit or loss for the at-risk activity, which may include amounts reported on other forms and schedules, and the at-risk amount for the activity. Follow the Instructions for Form 6198 to determine how much of your Schedule C loss will be allowed. After you figure the amount of your loss that is allowed under the at-risk rules, you may need to complete Form 8582 to figure the allowable loss to enter on line 31. See the Instructions for Form 8582 for details.
caution
If you checked box 32b because some investment is not at risk and you do not attach Form 6198, the processing of your return may be delayed.
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At-risk loss deduction.(p13)
rule
Any loss from this business not allowed for 2013 only because of the at-risk rules is treated as a deduction allocable to the business in 2014.
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More information.(p14)
rule
For details, see the Instructions for Form 6198 and Pub. 925.