2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

Generally, you can deduct only 50% of • Form 8884, New York Liberty Zone arrangement (excluding casualty insurance
your business meal and entertainment ex- Business Employee Credit, line 2. and insurance against tort liability).
penses, including meals incurred while
• Amounts borrowed for use in the busiaway
from home on business. For individu-
If you provided taxable fringe ness from a person who has an interest in
als subject to the Department of Transpor-
benefits to your employees, the business, other than as a creditor, or
tation (DOT) hours of service limits, that
such as personal use of a car, do who is related under section 465(b)(3) to a
percentage is increased to 70% for business
not deduct as wages the amount person (other than you) having such an inapplicable
to depreciation and other ex-
terest.
meals consumed during, or incident to, any
period of duty for which those limits are in penses claimed elsewhere.
effect. Individuals subject to the DOT
If all amounts are at risk in this business,
hours of service limits include the follow-
check box 32a and enter your loss on line
ing persons:
31. But if you answered “No” to Question
Line 30
G, you may need to complete Form 8582 to
• Certain air transportation workers
Business use of your home. You may be
figure your deductible loss. See the Instruc-
(such as pilots, crew, dispatchers, mechantions
for Form 8582 for details.
able to deduct certain expenses for business
ics, and control tower operators) who are
under Federal Aviation Administration reg- use of your home, subject to limitations. If you checked box 32b, see Form 6198
ulations.
You must attach Form 8829 if you claim to determine the amount of your deductible
• Interstate truck operators who are this deduction. For details, see the Instruc- loss. But if you answered “No” to Question
under DOT regulations.
tions for Form 8829 and Pub. 587. G, your loss may be further limited. See the
Instructions for Form 8582. If your at-risk
• Certain merchant mariners who are amount is zero or less, enter -0- on line 31.
under Coast Guard regulations.
Be sure to attach Form 6198 to your return.
Line 31
However, you can fully deduct meals,
If you checked box 32b and you do not
incidentals, and entertainment furnished or If you have a loss, the amount of loss you attach Form 6198, the processing of your
reimbursed to an employee if you properly can deduct this year may be limited. Go to tax return may be delayed.
treat the expense as wages subject to with- line 32 before entering your loss on line 31. Any loss from this business not allowed
holding. You can also fully deduct meals, If you answered “No” to Schedule C, Ques-
for 2004 because of the at-risk rules is
incidentals, and entertainment provided to tion G, also see the Instructions for Form treated as a deduction allocable to the busia
nonemployee to the extent the expenses 8582. Enter the net profit or deductible loss ness in 2005. For details, see the Instruchere.
Combine this amount with any profit tions for Form 6198 and Pub. 925.
are includible in the gross income of that
person and reported on Form 1099-MISC. or loss from other businesses, and enter the
See Pub. 535 for details and other excep- total on Form 1040, line 12, and Schedule
tions.
SE, line 2. Estates and trusts should enter
the total on Form 1041, line 3.
If you provide daycare in your home,
Part III. Cost of Goods
see Pub. 587 for information on deducting If you have a net profit on line 31, this
the cost of meals and snacks you provide to amount is earned income and may qualify Sold
your daycare recipients.
you for the earned income credit. See the Generally, if you engaged in a trade or
instructions for Form 1040, lines 65a and business in which the production, purchase,
Figure how much of the amount on line 65b, for details.
or sale of merchandise was an income-pro-
24b is not deductible and enter that amount
Statutory employees. Include your net ducing factor, you must take inventories
on line 24c.
profit or deductible loss from line 31 with into account at the beginning and end of
other Schedule C amounts on Form 1040, your tax year.
line 12. However, do not report this amount However, if you are a qualifying taxon
Schedule SE, line 2. If you are required payer or a qualifying small business tax-
Line 25
Deduct only utility expenses for your trade
to file Schedule SE because of other payer, you can account for inventoriable
or business.
self-employment income, see the Instruc- items in the same manner as materials and
tions for Schedule SE.
supplies that are not incidental. To change
Local telephone service. If you used your
your accounting method, see the instruchome
phone for business, do not deduct the
tions for line F on page C-2.
base rate (including taxes) of the first Line 32
A qualifying taxpayer is a taxpayer (a)
phone line into your residence. But you can
whose average annual gross receipts for the
deduct expenses for any additional costs At-risk rules. Generally, if you have (a) a 3 prior tax years are $1 million or less, and
you incurred for business that are more business loss and (b) amounts in the busi-
(b) whose business is not a tax shelter (as
than the cost of the base rate for the first ness for which you are not at risk, you will defined in section 448(d)(3)).
phone line. For example, if you had a sec- have to complete Form 6198 to figure your
ond line, you can deduct the business pera
taxpayer (a) whose average annual gross
allowable loss. The at-risk rules generally A qualifying small business taxpayer is
centage of the charges for that line, limit the amount of loss (including loss on
including the base rate charges.
the disposition of assets) you can claim to receipts for the 3 prior tax years are more
the amount you could actually lose in the than $1 million but not more than $10 mil-
business.
lion, (b) whose business is not a tax shelter
(as defined in section 448(d)(3)), and (c)
Line 26
Check box 32b if you have amounts for whose principal business activity is not an
Enter the total salaries and wages for the
which you are not at risk in this business, ineligible activity as explained in Rev.
tax year. Do not include salaries and wages
such as the following.
Proc. 2002-28. You can find Rev. Proc.
deducted elsewhere on your return or • Nonrecourse loans used to finance the 2002-28 on page 815 of Internal Revenue
amounts paid to yourself. Reduce your deirs-irbs/irb02-18.pdf.
business, to acquire property used in the Bulletin 2002-18 at www.irs.gov/pub/
duction by the amounts claimed on: business, or to acquire the business that are
• Form 5884, Work Opportunity Credit,
not secured by your own property (other Under this accounting method, invenline
2;
than property used in the business). How- tory costs for raw materials purchased for
ever, there is an exception for certain non-
• Form 8844, Empowerment Zone and
use in producing finished goods and merrecourse
financing borrowed by you in
Renewal Community Employment Credit,
chandise purchased for resale are deducticonnection
with holding real property.
line 2;
ble in the year the finished goods or
• Cash, property, or borrowed amounts merchandise are sold (but not before the
• Form 8845, Indian Employment used in the business (or contributed to the year you paid for the raw materials or mer-
Credit, line 4; business, or used to acquire the business) chandise, if you are also using the cash
• Form 8861, Welfare-to-Work Credit, that are protected against loss by a guaran- method). Enter amounts paid for all raw
line 2; and tee, stop-loss agreement, or other similar materials and merchandise during 2004 on
C-6