Introduction
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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Important Changes
for 2002
The following items highlight some changes in the tax law for 2002.
Retirement plans. Many changes to the tax laws for retirement plans
were made by the Economic Growth and Tax Relief Reconciliation Act of 2001 that was
enacted on June 7, 2001. Most of those changes take effect in 2002. For information about
those changes that are not covered in chapter 3, see Publication 560, Retirement Plans
for Small Business, or Publication 553, Highlights of 2002 Tax Changes.
Health insurance deduction for the self-employed. For 2002, this
deduction is 70% of the amount you pay for health insurance for yourself and your family.
See chapter 7.
New health insurance credit for eligible recipients. You may be able
to take this new credit only if you were an eligible trade adjustment
assistance (TAA), alternative TAA, or Pension Benefit Guaranty Corporation pension
recipient. By February 18, 2003, Form 8887, Health Insurance Credit Eligibility
Certificate, showing that you were an eligible recipient should be sent to you. Use Form
8885, Health Insurance Credit for Eligible Recipients, to figure the amount,
if any, of your health insurance credit.
Qualified environmental cleanup (remediation) costs. The deduction
for qualified environmental cleanup (remediation) costs was scheduled to expire for costs
paid or incurred after 2001. It has been extended to include costs you pay or incur before
2004. 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
that scheduled to expire for tax years beginning after 2001 has been extended to tax years
beginning before 2004. For more information on marginal production, see section 613A(c) of
the Internal Revenue Code.
Maximum clean-fuel vehicle deduction. The maximum clean-fuel vehicle
deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002
and both were scheduled to be phased out completely by 2005. The full deduction and credit
are now allowed for qualified property placed in service in 2002 and 2003. The phaseout of
the deduction and the credit will begin in 2004, and no deduction or credit will be
allowed for property placed in service after 2006. See chapter 12.
Standard mileage rate. The standard mileage rate for the cost of
operating your car, van, pickup, or panel truck in 2002 is 36½ cents a mile for all
business miles. See chapter 13.
Meal expense deduction subject to hours of service limits.
In 2002, this deduction increases to 65% of the reimbursed meals your employees consume
while they are subject to the Department of Transportation's hours of service
limits. See chapter 13.
Important Change
for 2003
Health insurance deduction for the self-employed. For 2003, this
deduction is 100% of the amount you pay for health insurance for yourself and your family.
See chapter 7.
Important Reminder
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.
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