You can generally deduct your ordinary and necessary fishing expenses as business expenses in Part II of the Schedule C (Form 1040). An ordinary fishing expense is one that is common and accepted in a fishing trade or business. A necessary fishing expense is one that is helpful and appropriate for a fishing trade or business. An expense does not have to be indispensable to be considered necessary.

The following discussions give a brief overview of three types of business expenses that are of special interest to fishermen: depreciation, travel, and transportation expenses. Business expenses that most small businesses share are listed in Part II of Schedule C. For more information on business expenses, see Publication 535. You may also find general information on specific business expenses in Publication 334.

Depreciation

If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. You must spread the cost over more than one tax year and deduct part of it each year. This method of deducting the cost of business property is called depreciation. Use Form 4562, Depreciation and Amortization, to report depreciation.

Publication 946 contains the rules you will use to depreciate certain property. The following list highlights items that are of special interest to fishermen.

• Fishing boats. You can generally depreciate a fishing boat used in your fishing trade or business as 7-year property using Modified Accelerated Cost Recovery System (MACRS) depreciation.
• Nets, pots, and traps. You can generally depreciate a net, pot, or trap used in your fishing trade or business as 7-year property using MACRS depreciation. However, if based on your own experience, you determine that any of these items will not be used for more than one year in your business, you may be able to deduct the cost as a business expense.
• Repair or improvement. If a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, it is an improvement. You must depreciate its cost. If the repair or replacement does not increase the value of your property, make it more useful, or lengthen its life, it is a repair. You deduct the cost as a business expense.

Section 179 deduction. Instead of depreciating property, you can choose to deduct a limited amount (up to $20,000 for 2000) of the cost of certain depreciable property in the year you buy it for use in your business. This deduction is known as the "section 179 deduction." For more information, see Publication 946.

Travel and Transportation

This section briefly explains some of the rules for deducting travel and transportation expenses. For more information about travel and transportation expenses, see Publication 463. That publication also explains what records to keep.

Local transportation expenses. Local transportation expenses include the ordinary and necessary costs of getting from one workplace to another in the course of your business when you are traveling within the city or general area that is your tax home.

Tax home. Generally, your tax home is your regular place of business, regardless of where you maintain your family home. It includes the entire city or general area in which your fishing business is located.

Commuting expenses. You cannot deduct the costs of traveling between your home and your main or regular place of business. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of business. You cannot deduct commuting expenses even if you work during the trip.

Travel expenses. For tax purposes, travel expenses are the ordinary and necessary costs of traveling away from home for your business, profession, or job. You are traveling away from home if you meet the following requirements.

1. Your duties require you to be away from the general area of your tax home (defined earlier) substantially longer than an ordinary day's work.
2. You need to get sleep or rest to meet the demands of your work while away from home.

Meals - limited deduction. You can generally deduct only 50% of the costs of the following meals.

• Meals you provide to either employees or self-employed individuals who provide services to your fishing trade or business.
• Your own meals while you are traveling away from home for business.

Exceptions to meal deduction limit. You can deduct the full costs of the following meals.

• Meals that qualify as a de minimis fringe benefit as discussed in chapter 2 of Publication 15-B. This generally includes meals you provide to employees at your place of business if more than half of these employees are provided the meals for your convenience.
• Meals whose value you include in an employee's wages. For more information, see chapter 2 in Publication 15-B.
• Meals whose value you include in the income of a self-employed individual who performs services for your business. You must generally include the value of meals you furnish to that individual in his or her income. To deduct 100% of these meals, you must report their value on any Form 1099-MISC you must file to report your payments for services.
• Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to provide if the vessels were operated at sea).

The federal law that generally requires meals to be furnished to crew members of commercial vessels does not apply to fishing vessels.

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