Publication 334 |
2001 Tax Year |
Taxes
You can deduct on Schedule C or C-EZ various federal, state,
local, and foreign taxes directly attributable to your business.
Income taxes.
You can deduct on Schedule C or C-EZ a state tax on
gross income (as distinguished from net income) directly
attributable to your business. You can deduct other state and local
income taxes on Schedule A (Form 1040) if you itemize your deductions.
Do not deduct federal income tax.
Employment taxes.
You can deduct the social security, Medicare, and federal
unemployment (FUTA) taxes you paid out of your own funds as an
employer. Employment taxes are discussed briefly in chapter 1. You can
also deduct payments you made as an employer to a state unemployment
compensation fund or to a state disability benefit fund. Deduct these
payments as taxes.
Self-employment tax.
You can deduct one-half of your self-employment tax on line 27 of
Form 1040. Self-employment tax is explained in chapter 1.
Personal property tax.
You can deduct on Schedule C or C-EZ any tax imposed by a
state or local government on personal property used in your business.
You can also deduct registration fees for the right to use property
within a state or local area.
Example.
May and Julius Winter drove their car 7,000 business miles out of a
total of 10,000 miles. They had to pay $25 for their state license
tags and $20 for their city registration sticker. They also paid $235
in city personal property tax on the car, for a total of $280. They
are claiming their actual car expenses. Because they used the car 70%
for business, they can deduct 70% of the $280, or $196, as a business
expense.
Real estate taxes.
You can deduct on Schedule C or C-EZ the real estate taxes
you pay on your business property. Deductible real estate taxes are
any state, local, or foreign taxes on real estate levied for the
general public welfare. The taxes must be based on the assessed value
of the real estate and must be charged uniformly against all property
under the jurisdiction of the taxing authority.
For more information about real estate taxes, see chapter 6 in
Publication 535.
That chapter explains special rules for deducting the
following items.
- Taxes for local benefits, such as those for sidewalks,
streets, and water and sewerage systems.
- Real estate taxes when you buy or sell property during the
year.
- Real estate taxes if you use an accrual method of
accounting.
Sales tax.
Treat any sales tax you pay on a service or on the purchase or use
of property as part of the cost of the service or property. If the
service or the cost or use of the property is a deductible business
expense, you can deduct the tax as part of that service or cost. If
the property is merchandise bought for resale, the sales tax is part
of the cost of the merchandise. If the property is depreciable, add
the sales tax to the basis for depreciation. For information on the
basis of property, see Publication 551,
Basis of Assets.
Do not deduct state and local sales taxes imposed on the buyer that
you must collect and pay over to the state or local government. Do not
include these taxes in gross receipts or sales.
Excise taxes.
You can deduct on Schedule C or C-EZ all excise taxes that
are ordinary and necessary expenses of carrying on your business.
Excise taxes are discussed briefly in chapter 1.
Fuel taxes.
Taxes on gasoline, diesel fuel, and other motor fuels you use in
your business are usually included as part of the cost of the fuel. Do
not deduct these taxes as a separate item.
You may be entitled to a credit or refund for federal excise tax
you paid on fuels used for certain purposes. For more information, see
Publication 378,
Fuel Tax Credits and Refunds.
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