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

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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
line 36. The amount you can deduct for $50,000. You can elect to amortize any remaining business start-up costs over 15 2004 is figured on line 42. Part V. Other years. For details, see Pub. 535. For amorti- Additional information. For additional Expenses zation that begins in 2004, you must comguidance on this method of accounting for plete and attach Form 4562. inventoriable items, see Rev. Proc. 2001-10 Include all ordinary and necessary business expenses not deducted elsewhere on Capital construction fund. Do not claim if you are a qualifying taxpayer or Rev. Schedule C. List the type and amount of on Schedule C or C-EZ the deduction for Proc. 2002-28 if you are a qualifying small each expense separately in the space probusiness taxpayer. You can find Rev. Proc. amounts contributed to a capital construc- vided. Enter the total on lines 48 and 27. Do tion fund set up under the Merchant Marine 2001-10 on page 272 of Internal Revenue not include the cost of business equipment Act of 1936. Instead, reduce the amount Bulletin 2001-2 at www.irs.gov/pub/ or furniture, replacements or permanent you would otherwise enter on Form 1040, irs-irbs/irb01-02.pdf, and Rev. Proc. improvements to property, or personal, liv- line 42, by the amount of the deduction. 2002-28 on page 815 of Internal Revenue ing, and family expenses. Do not include Next to line 42, enter “CCF” and the Bulletin 2002-18 at www.irs.gov/pub/ charitable contributions. Also, you cannot amount of the deduction. For details, see irs-irbs/irb02-18.pdf. deduct fines or penalties paid to a government for violating any law. For details on Clean-fuel vehicles and clean-fuel vehicle Pub. 595. Certain direct and indirect ex- business expenses, see Pub. 535. refueling property. You may be able to depenses may have to be capital- duct part of the cost of qualified clean-fuel ized or included in inventory. Amortization. Include amortization in this vehicle property used in your business and See the instructions for Part II part. For amortization that begins in 2004, qualified clean-fuel vehicle refueling propyou must complete and attach Form 4562. beginning on page C-3. erty. See Pub. 535 for details. You can amortize: Disabled access credit and the deduction • The cost of pollution-control facilidisabilities and the elderly. You may be for removing barriers to individuals with Line 33 ties. Your inventories can be valued at cost; cost • Amounts paid for research and experi- able to claim a tax credit of up to $5,000 for or market value, whichever is lower; or any mentation. eligible expenditures paid or incurred in other method approved by the IRS. How- • Qualified revitalization expenditures. 2004 to provide access to your business for ever, you are required to use cost if you are individuals with disabilities. See Form • Amounts paid to acquire, protect, exusing the cash method of accounting. 8826 for details. You can also deduct up to pand, register, or defend trademarks or $15,000 of costs paid or incurred in 2004 to trade names. remove architectural or transportation bar- • Goodwill and certain other in- riers to individuals with disabilities and the Line 35 tangibles. elderly. However, you cannot take both the credit and the deduction on the same ex- If you are changing your method of ac- In general, you cannot amortize real penditures. counting beginning with 2004, refigure last property construction period interest and year’s closing inventory using your new taxes. Special rules apply for allocating in- Film and television production expenses. method of accounting and enter the result terest to real or personal property produced You can elect to deduct costs of certain on line 35. If there is a difference between in your trade or business. qualified film and television productions last year’s closing inventory and the that begin after October 22, 2004. For de- refigured amount, attach an explanation At-risk loss deduction. Any loss from this tails, see Pub. 535. and take it into account when figuring your activity that was not allowed as a deduction last year because of the at-risk rules is Forestation and reforestation costs. You section 481(a) adjustment. See the example treated as a deduction allocable to this acon page C-2 for details. can elect to amortize certain forestation and tivity in 2004. reforestation costs over 84 months. You can also elect to expense up to $10,000 Business start-up costs. You can elect to ($5,000 if married filing separately) of ceramortize certain business start-up costs tain forestation and reforestation costs paid Line 41 paid or incurred before October 23, 2004, or incurred after October 22, 2004, for each If you account for inventoriable items in over 60 months or more, beginning with the qualified timber property. The amortization the same manner as materials and supplies month your business began. For certain election does not apply to trusts and the that are not incidental, enter on line 41 the business start-up costs paid or incurred afand trusts. For details, see Pub. 535. For expense election does not apply to estates portion of your raw materials and merchan- ter October 22, 2004, you can elect to deamortization that begins in 2004, you must dise purchased for resale that are included duct up to $5,000 for the year your business on line 40 and were not sold during the began. This limit is reduced by the amount complete and attach Form 4562. year. by which your start-up costs exceed Principal Business or Professional Activity Codes These codes for the Principal Business or Professional Select the category that best describes your primary of real estate agents and brokers) and enter it on Activity classify sole proprietorships by the type of business activity (for example, Real Estate). Then Schedule C or C-EZ, line B. activity they are engaged in to facilitate the select the activity that best identifies the principal administration of the Internal Revenue Code. These source of your sales or receipts (for example, real six-digit codes are based on the North American estate agent). Now find the six-digit code assigned to Note. If your principal source of income is from farming activities, you should file Schedule F. Industry Classification System (NAICS). this activity (for example, 531210, the code for offices Accommodation, Food 722300 Special food services 561410 Document preparation 561500 Travel arrangement & Services, & Drinking Places (including food service services reservation services contractors & caterers) 561300 Employment services 561490 Other business support Accommodation 561710 Exterminating & pest control services (including 721310 Rooming & boarding houses Administrative & Support services repossession services, court 721210 RV (recreational vehicle) and Waste Management & 561210 Facilities support reporting, & stenotype parks & recreational camps Remediation Services (management) services services) 721100 Travel accommodation Administrative & Support 561600 Investigation & security 561790 Other services to buildings & (including hotels, motels, & services dwellings bed & breakfast inns) Services 561720 Janitorial services 561900 Other support services Food Services & Drinking 561430 Business service centers (including packaging & (including private mail 561730 Landscaping services Places labeling services, & centers & copy shops) 561110 Office administrative services convention & trade show 722410 Drinking places (alcoholic 561740 Carpet & upholstery cleaning 561420 Telephone call centers organizers) beverages) services (including telephone 722110 Full-service restaurants 561440 Collection agencies answering services & 722210 Limited-service eating places 561450 Credit bureaus telemarketing bureaus) C-7
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Note. This booklet does not contain
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What is IRS e-file? It’s the fast
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Tax Return Page Reference Questions
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Quick and Easy Access to Tax Help a
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Topic TeleTax Topics No. Subject No
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Before You Fill In Form 1040 See Ho
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Chart B—For Children and Other De
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Form Item and Box in Which it Shoul
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Line 2 December 31, 2004, you were
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Form 1040—Lines 7 and 8a less tha
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gross income was over $139,500 ($69
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Form 1040—Lines 16a and 16b Age (
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Form 1040—Lines 20a and 20b Socia
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Form 1040—Line 25 IRA Deduction W
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Form 1040—Lines 27 Through 29 for
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Line 35 Include in the total on lin
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Form 1040—Lines 41 and 43 Tax Tab
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Line 44 • Tax-exempt interest fro
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Line 51—Child Tax Credit What Is
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Page 45 and 46: Worksheet A—Earned Income Credit
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Page 55 and 56: number is 20202086. Do not include
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2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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