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and necessary expenses directly related to op- erating your business are deductible as busi- ness expenses. However, usually legal fees you pay to acquire business assets aren’t de- ductible. These costs are added to the basis of the property. Fees that include payments for work of a personal nature (such as drafting a will, or dam- ages arising from a personal injury) aren’t al- lowed as a business deduction on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). If the invoice includes both business and per- sonal charges, figure the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denomina- tor of which is the total amount paid. The result is the portion of the invoice attributable to busi- ness expenses. The portion attributable to per- sonal matters is the difference between the total amount and the business portion (figured above). Legal fees relating to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, may be deductible on Sched- ule A (Form 1040), if you itemize deductions. For more information, see Pub. 529. Certain payments made in sexual har- assment or sexual abuse cases. For amounts paid or incurred after December 22, 2017, new section 162(q) provides that no de- duction is allowed under section 162 for any settlement or payment related to sexual harass- ment or sexual abuse if it is subject to a nondi- sclosure agreement. In addition, attorney’s fees related to such a settlement or payment are not allowed as a deduction. Tax preparation fees. The cost of hiring a tax professional, such as a Certified Public Ac- countant (CPA), to prepare that part of your tax return relating to your business as a sole pro- prietor is deductible on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Deduct expenses of preparing tax schedules relating to rentals or royalties (Schedule E), or farm in- come and expenses (Schedule F) on the appro- priate schedule. Expenses for completing the remainder of the return are miscellaneous de- ductions and are no longer deductible. You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. Licenses and regulatory fees. Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Some licenses and fees may have to be amortized. See chapter 8 for more information. Lobbying expenses. Generally, lobbying ex- penses aren’t deductible. Lobbying expenses include amounts paid or incurred for any of the following activities. • Influencing legislation. • Participating in or intervening in any politi- cal campaign for, or against, any candidate for public office. • Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. • Communicating directly with covered ex- ecutive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. • Researching, preparing, planning, or coor- dinating any of the preceding activities. Your expenses for influencing legislation and communicating directly with a covered ex- ecutive branch official include a portion of your labor costs and general and administrative costs of your business. For information on mak- ing this allocation, see section 1.162-28 of the regulations. You can’t claim a charitable or business ex- pense deduction for amounts paid to an organi- zation if both of the following apply. • The organization conducts lobbying activi- ties on matters of direct financial interest to your business. • A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expen- ses, you can’t deduct that part of the dues. Covered executive branch official. For purposes of this discussion, a covered execu- tive branch official is any of the following. 1. The President. 2. The Vice President. 3. Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level of- ficers of each of the other agencies in the Executive Office. 4. Any individual who: a. Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code; b. Has been designated by the Presi- dent as having Cabinet-level status; or c. Is an immediate deputy of an individ- ual listed in item (a) or (b). Exceptions to denial of deduction. The general denial of the deduction doesn’t apply to the following. • Any in-house expenses for influencing leg- islation and communicating directly with a covered executive branch official if those expenses for the tax year don’t exceed $2,000 (excluding overhead expenses). • Expenses incurred by taxpayers engaged in the trade or business of lobbying (pro- fessional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). Moving machinery. Generally, the cost of moving machinery from one city to another is a deductible expense. So is the cost of moving machinery from one plant to another, or from one part of your plant to another. You can de- duct the cost of installing the machinery in the new location. However, you must capitalize the costs of installing or moving newly purchased machinery. Outplacement services. The costs of out- placement services you provide to your employ- ees to help them find new employment, such as career counseling, résumé assistance, skills as- sessment, etc., are deductible. The costs of outplacement services may cover more than one deduction category. For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as a rental expense the cost of renting machinery and equipment for this service. For information on whether the value of out- placement services is includible in your employ- ees' income, see Pub. 15-B. Penalties and fines. Penalties paid for late performance or nonperformance of a contract are generally deductible. For instance, you own and operate a construction company. Under a contract, you are to finish construction of a building by a certain date. Due to construction delays, the building isn’t completed and ready for occupancy on the date stipulated in the con- tract. You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. These additional costs are deductible business expenses. On the other hand, generally, no deduction is allowed for penalties and fines paid to a gov- ernment or specified nongovernmental entity for the violation of any law except the following. • Amounts that constitute restitution. • Amounts paid to come into compliance with the law. • Amounts paid or incurred as the result of certain court orders in which no govern- ment or specified nongovernmental agency is a party. • Amounts paid or incurred for taxes due. On or after December 22, 2017, no deduc- tion is allowed for the restitution amount or amount paid to come into compliance with the law unless the amounts are specifically identi- fied in the settlement agreement or court order. Also, any amount paid or incurred as reim- bursement to a government for the costs of any investigation or litigation are not eligible for the exceptions and are nondeductible. See section 162(f), as amended by P.L. 115-97, section 13306. Examples of nondeductible penalties and fines include the following. • Amounts paid because of a conviction for a crime or after a plea of guilty or no con- test in a criminal proceeding. • Amounts paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and addi- tional amounts and assessable penalties imposed by the Internal Revenue Code. • Amounts paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. • Amounts forfeited as collateral posted for a proceeding that could result in a fine or penalty. • Fines paid for violating city housing codes. • Fines paid by truckers for violating state maximum highway weight laws. Chapter 11 Other Expenses Page 47