This publication discusses common business expenses and explains what is and is not deductible. The general rules for deducting
business expenses
are discussed in the opening chapter. The chapters that follow cover specific expenses and list other publications and forms
you may need.
Comments and suggestions.
We welcome your comments about this publication and your suggestions for future editions.
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Internal Revenue Service
Business Forms and Publications Branch
SE:W:CAR:MP:T:B
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Washington, DC 20224
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Tax questions.
If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions at either
of the addresses listed above.
Ordering forms and publications.
Visit
www.irs.gov/formspubs
to download forms and publications, call 1-800-829-3676, or write to one of the three addresses shown under
How To Get Tax Help in the back
of this publication.
The following items highlight some changes in the tax law for 2005.
2005 Presidentially declared disaster areas. . The information in this publication covers routine business situations. If your business has been affected by Hurricanes Katrina,
Wilma, or Rita,
see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Wilma, and Rita. Publication 4492 contains
special business provisions
found in the Katrina Emergency Tax Relief Act of 2005 and the Gulf Opportunity Zone Act of 2005.
Meal expense deduction subject to “hours of service” limits. For 2005, this deduction is 70% of the reimbursed meals your employees consumed while they were subject to the Department
of Transportation's
“hours of service” limits. See chapter 13.
Increased section 179 deduction dollar limit. . The maximum section 179 deduction you can elect for property you purchased and placed in service beginning in 2005 has increased
from $102,000 to
$105,000. For more information, see Publication 946.
Domestic production activities deduction. . You may be able to deduct up to 3% of your qualified production activities income from certain business activities. For more
information, see Form
8903, Domestic Production Activities Deduction.
Elective deferrals. For 2005, the maximum amount of elective deferrals under a salary reduction agreement that could be contributed to a qualified
plan increased to
$14,000 ($18,000 if you were age 50 or older). For SIMPLE plans, the amount increased to $10,000 ($12,000 if you were age
50 or older). The maximum
elective deferral amount is $17,000 for section 403(b) plans if you qualify for the 15-year rule. See chapter 3.
Compensation limit. The maximum compensation used for figuring contributions and benefits for a retirement plan has increased from $205,000 to
$210,000 for 2005.
Standard mileage rate. The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2005 is 40.5 cents a mile for
all business miles
driven before September 1, 2005. The rate is 48.5 cents a mile for business miles driven after August 31, 2005, and before
January 1, 2006. See
chapter 1.
The following items highlight some changes in the tax law for 2006.
Elective deferrals. For 2006, the maximum amount of elective deferrals under a salary reduction agreement that can be contributed to a qualified
plan increases to
$15,000 ($20,000 if you are age 50 or older). However, for SIMPLE plans, the amount is $10,000 ($12,500 if you are age 50
or older).
Compensation limit. The maximum compensation used for figuring contributions and benefits for a retirement plan will increase from $210,000 to
$220,000 for 2006.
Standard mileage rate. . The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2006 is 44.5 cents a mile for
all business miles.
Qualified environmental cleanup (remediation) costs. The deduction for qualified environmental cleanup (remediation) costs include costs you pay or incur before 2006. See chapter
8.
Marginal production of oil and gas. The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas has
been extended to tax
years beginning before 2006. For more information on marginal production, see section 613A(c) of the Internal Revenue Code.
Maximum clean-fuel vehicle deduction. 100% of the clean-fuel vehicle deduction and qualified electric vehicle credit are allowed for qualified property placed in
service in 2005. See
chapter 12.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of
missing children
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children
home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
