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Kickbacks. A kickback is a payment for re- ferring a client, patient, or customer. The com- mon kickback situation occurs when money or property is given to someone as payment for in- fluencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. In many cases, the per- son whose business is being sought or enjoyed by the person who pays the kickback isn’t aware of the payment. For example, the Yard Corporation is in the business of repairing ships. It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Although this practice is considered an ordinary and nec- essary expense of getting business, it is clearly a violation of a state law that is generally en- forced. These expenditures aren’t deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Form 1099-MISC. It doesn’t matter whether any kickbacks paid during the tax year are deductible on your income tax return in re- gards to information reporting. See Form 1099-MISC for more information. Car and truck expenses. The costs of operat- ing a car, truck, or other vehicle in your busi- ness are deductible. For more information on how to figure your deduction, see Pub. 463. Charitable contributions. Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the pay- ments aren’t charitable contributions or gifts and are directly related to your business. If the payments are charitable contributions or gifts, you can’t deduct them as business expenses. However, corporations (other than S corpora- tions) can deduct charitable contributions on their income tax returns, subject to limitations. See the Instructions for Form 1120 for more in- formation. Sole proprietors, partners in a part- nership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Example. You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. The purpose of the ad was to en- courage readers to buy your products. Your payment isn’t a charitable contribution. You can deduct it as an advertising expense. Example. You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Your payment isn’t a charitable contribu- tion. You can deduct it as a business expense. See Pub. 526 for a discussion of donated in- ventory, including capital gain property. Club dues and membership fees. Generally, you can’t deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social pur- pose. This includes country clubs, golf and ath- letic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals un- der circumstances generally considered to be conducive to business discussions. Exception. The following organizations aren’t treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. • Boards of trade. • Business leagues. • Chambers of commerce. • Civic or public service organizations. • Professional organizations such as bar as- sociations and medical associations. • Real estate boards. • Trade associations. Credit card convenience fees. Credit card companies charge a fee to businesses who ac- cept their cards. This fee when paid or incurred by the business can be deducted as a business expense. Damages recovered. Special rules apply to compensation you receive for damages sus- tained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust viola- tions. You must include this compensation in your income. However, you may be able to take a special deduction. The deduction applies only to amounts recovered for actual economic in- jury, not any additional amount. The deduction is the smaller of the following. • The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. • Your losses from the injury you haven’t de- ducted. Demolition expenses or losses. Amounts paid or incurred to demolish a structure aren’t deductible. These amounts are added to the basis of the land where the demolished struc- ture was located. Any loss for the remaining un- depreciated basis of a demolished structure wouldn’t be recognized until the property is dis- posed of. Education expenses. Ordinary and neces- sary expenses paid for the cost of the education and training of your employees are deductible. See Education Expenses in chapter 2. You can also deduct the cost of your own education (including certain related travel) rela- ted to your trade or business. You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. For ex- ample, an attorney can deduct the cost of at- tending Continuing Legal Education (CLE) classes that are required by the state bar asso- ciation to maintain his or her license to practice law. Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, aren’t deductible. This is true even if the education maintains or improves skills presently required in your business. For more information on education expenses, see Pub. 970. Franchise, trademark, trade name. If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: 1. Contingent on productivity, use, or dispo- sition of the item; 2. Payable at least annually for the entire term of the transfer agreement; and 3. Substantially equal in amount (or payable under a fixed formula). When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferor reasonably expect the agreement to be re- newed. A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, serv- ices, or facilities within a specified area. Impairment-related expenses. If you are dis- abled, you can deduct expenses necessary for you to be able to work (impairment-related ex- penses) as a business expense, rather than as a medical expense. You are disabled if you have either of the fol- lowing. • A physical or mental disability (for exam- ple, blindness or deafness) that function- ally limits your being employed. • A physical or mental impairment that sub- stantially limits one or more of your major life activities. The expense qualifies as a business ex- pense if all the following apply. • Your work clearly requires the expense for you to satisfactorily perform that work. • The goods or services purchased are clearly not needed or used, other than inci- dentally, in your personal activities. • Their treatment isn’t specifically provided for under other tax law provisions. Example. You are blind. You must use a reader to do your work, both at and away from your place of work. The reader's services are only for your work. You can deduct your expen- ses for the reader as a business expense. Internet-related expenses. Generally, you can deduct Internet-related expenses including domain registration fees and webmaster con- sulting costs. If you are starting a business, you may have to amortize these expenses as start-up costs. For more information about am- ortizing start-up and organizational costs, see chapter 8. Interview expense allowances. Reimburse- ments you make to job candidates for transpor- tation or other expenses related to interviews for possible employment aren’t wages. You can deduct the reimbursements as a business ex- pense. However, expenses for food, bever- ages, and entertainment are subject to the 50% limit discussed earlier under Meals and Enter- tainment. Legal and professional fees. Fees charged by accountants and attorneys that are ordinary Page 46 Chapter 11 Other Expenses