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1040ez 2013 10. 1040ez 2013 Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. 1040ez 2013 Cash method. 1040ez 2013 Debt acquired from a decedent. 1040ez 2013 Liquidation. 1040ez 2013 Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. 1040ez 2013 Introduction You have a bad debt if you cannot collect money owed to you. 1040ez 2013 A bad debt is either a business bad debt or a nonbusiness bad debt. 1040ez 2013 This chapter discusses only business bad debts. 1040ez 2013 Generally, a business bad debt is one that comes from operating your trade or business. 1040ez 2013 You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. 1040ez 2013 All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. 1040ez 2013 For more information on nonbusiness bad debts, see Publication 550. 1040ez 2013 Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. 1040ez 2013 S. 1040ez 2013 Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. 1040ez 2013 Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. 1040ez 2013 A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. 1040ez 2013 Bad debts of a corporation (other than an S corporation) are always business bad debts. 1040ez 2013 Credit sales. 1040ez 2013 Business bad debts are mainly the result of credit sales to customers. 1040ez 2013 Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. 1040ez 2013 After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. 1040ez 2013 Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. 1040ez 2013 If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. 1040ez 2013 You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. 1040ez 2013 This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. 1040ez 2013 Accrual method. 1040ez 2013 If you use the accrual method of accounting, you generally report income as you earn it. 1040ez 2013 You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. 1040ez 2013 If you qualify, you can use the nonaccrual-experience method of accounting discussed later. 1040ez 2013 Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. 1040ez 2013 Cash method. 1040ez 2013 If you use the cash method of accounting, you generally report income when you receive payment. 1040ez 2013 You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. 1040ez 2013 For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. 1040ez 2013 Debts from a former business. 1040ez 2013 If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. 1040ez 2013 If any of these receivables subsequently become worthless, the loss is still a business bad debt. 1040ez 2013 Debt acquired from a decedent. 1040ez 2013 The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. 1040ez 2013 The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. 1040ez 2013 Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. 1040ez 2013 Liquidation. 1040ez 2013 If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. 1040ez 2013 Types of Business Bad Debts Business bad debts may result from the following. 1040ez 2013 Loans to clients and suppliers. 1040ez 2013 If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. 1040ez 2013 Debts owed by political parties. 1040ez 2013 If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. 1040ez 2013 You use the accrual method of accounting. 1040ez 2013 The debt arose from the sale of goods or services in the ordinary course of your trade or business. 1040ez 2013 More than 30% of your receivables accrued in the year of the sale were from sales to political parties. 1040ez 2013 You made substantial and continuing efforts to collect on the debt. 1040ez 2013 Loan or capital contribution. 1040ez 2013 You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. 1040ez 2013 Debts of an insolvent partner. 1040ez 2013 If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. 1040ez 2013 If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. 1040ez 2013 Business loan guarantee. 1040ez 2013 If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. 1040ez 2013 You made the guarantee in the course of your trade or business. 1040ez 2013 You have a legal duty to pay the debt. 1040ez 2013 You made the guarantee before the debt became worthless. 1040ez 2013 You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. 1040ez 2013 You received reasonable consideration for making the guarantee. 1040ez 2013 You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. 1040ez 2013 Example. 1040ez 2013 Jane Zayne owns the Zayne Dress Company. 1040ez 2013 She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. 1040ez 2013 Elegant Fashions is one of Zayne's largest clients. 1040ez 2013 Elegant Fashions later defaulted on the loan. 1040ez 2013 As a result, Ms. 1040ez 2013 Zayne paid the remaining balance of the loan in full to the bank. 1040ez 2013 She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. 1040ez 2013 She was motivated by the desire to retain one of her better clients and keep a sales outlet. 1040ez 2013 Deductible in the year paid. 1040ez 2013 If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. 1040ez 2013 Rights against a borrower. 1040ez 2013 When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. 1040ez 2013 The debt is then owed to you. 1040ez 2013 If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. 1040ez 2013 Joint debtor. 1040ez 2013 If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. 1040ez 2013 Sale of mortgaged property. 1040ez 2013 If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. 1040ez 2013 When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. 1040ez 2013 This may occur when the debt is due or prior to that date. 1040ez 2013 To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. 1040ez 2013 It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. 1040ez 2013 Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. 1040ez 2013 Property received for debt. 1040ez 2013 If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. 1040ez 2013 You can deduct the remaining debt as a bad debt if and when it becomes worthless. 1040ez 2013 If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. 1040ez 2013 It is not a recovery of a bad debt. 1040ez 2013 For information on the sale of an asset, see Publication 544. 1040ez 2013 How To Claim a Business Bad Debt There are two methods to claim a business bad debt. 1040ez 2013 The specific charge-off method. 1040ez 2013 The nonaccrual-experience method. 1040ez 2013 Generally, you must use the specific charge-off method. 1040ez 2013 However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . 1040ez 2013 Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. 1040ez 2013 However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. 1040ez 2013 Partly worthless debts. 1040ez 2013 You can deduct specific bad debts that become partly uncollectible during the tax year. 1040ez 2013 Your tax deduction is limited to the amount you charge off on your books during the year. 1040ez 2013 You do not have to charge off and deduct your partly worthless debts annually. 1040ez 2013 You can delay the charge off until a later year. 1040ez 2013 However, you cannot deduct any part of a debt after the year it becomes totally worthless. 1040ez 2013 Significantly modified debt. 1040ez 2013 An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. 1040ez 2013 For more information, see Regulations section 1. 1040ez 2013 166-3(a)(3). 1040ez 2013 Deduction disallowed. 1040ez 2013 Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. 1040ez 2013 If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. 1040ez 2013 The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. 1040ez 2013 Totally worthless debts. 1040ez 2013 If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. 1040ez 2013 You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. 1040ez 2013 However, you may want to do so. 1040ez 2013 If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. 1040ez 2013 See Partly worthless debts, earlier. 1040ez 2013 Filing a claim for refund. 1040ez 2013 If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. 1040ez 2013 If the bad debt was totally worthless, you must file the claim by the later of the following dates. 1040ez 2013 7 years from the date your original return was due (not including extensions). 1040ez 2013 2 years from the date you paid the tax. 1040ez 2013 If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. 1040ez 2013 3 years from the date you filed your original return. 1040ez 2013 2 years from the date you paid the tax. 1040ez 2013 You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. 1040ez 2013 Such an impairment requires proof of existence. 1040ez 2013 For details and more information about filing a claim, see Publication 556. 1040ez 2013 Use one of the following forms to file a claim. 1040ez 2013 For more information, see the instructions for the applicable form. 1040ez 2013 Table 10-1. 1040ez 2013 Forms Used To File a Claim IF you filed as a. 1040ez 2013 . 1040ez 2013 . 1040ez 2013 THEN file. 1040ez 2013 . 1040ez 2013 . 1040ez 2013 Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. 1040ez 2013 Under this method, you do not accrue service related income you expect to be uncollectible. 1040ez 2013 Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. 1040ez 2013 Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. 1040ez 2013 Service related income. 1040ez 2013 You can use the nonaccrual-experience method only for amounts earned by performing services. 1040ez 2013 You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. 1040ez 2013 Gross receipts test. 1040ez 2013 To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. 1040ez 2013 If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. 1040ez 2013 The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. 1040ez 2013 For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. 1040ez 2013 Interest or penalty charged. 1040ez 2013 Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. 1040ez 2013 However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. 1040ez 2013 You otherwise accrue the full amount due as gross income at the time you provide the services. 1040ez 2013 You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. 1040ez 2013 Change in accounting method. 1040ez 2013 Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. 1040ez 2013 See Form 3115 and the Instructions for Form 3115 for more information. 1040ez 2013 Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. 1040ez 2013 The amount you include is limited to the amount you actually deducted. 1040ez 2013 However, you can exclude the amount deducted that did not reduce your tax. 1040ez 2013 Report the recovery as “Other income” on the appropriate business form or schedule. 1040ez 2013 See Recoveries in Publication 525 for more information. 1040ez 2013 Net operating loss (NOL) carryover. 1040ez 2013 If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. 1040ez 2013 A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. 1040ez 2013 For more information about NOLs, see Publication 536. 1040ez 2013 Also, see the Instructions for Form 1045, and the Instructions for Form 1139. 1040ez 2013 Prev Up Next Home More Online Publications
IRS - Collecting Revenue
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These tables provide an overview of the main IRS functions: processing tax returns and collecting revenue. Much of these data are published by fiscal year; however, historical tax collection data are also available, as well as projections of returns to be filed in the future.
The tables below were originally published in the IRS Data Book, which is IRS Publication 55B, and are complied by various divisions throughout the IRS. The IRS's fiscal year runs from October 1 to September 30.
|Summary of Internal Revenue Collections |
Internal Revenue Collections and Refunds
Internal Revenue collections and refunds, by type of tax, including corporation, individual, employment, estate, gift, and excise taxes.
Internal Revenue Gross Collections
Internal Revenue Gross Collections
These tables breakout the total taxes paid by type of tax, including corporation, individual, employment, estate & gift, and excise taxes.
Internal Revenue Gross Collections
Shown by state and by type of tax, including corporation, individual and employment, railroad retirement, unemployment insurance, estate, gift, and excise taxes.
• Prior to 2000, gross collections were reported by IRS region and district, as shown in the tables below.
Fiscal Years available:
1999 1998 1997 1996 1995
Summary of Number of Returns
Number of Returns Filed
These tables provide a summary of returns filed, by tax type, including income, estate, gift, employment, and excise taxes, as well as tax-exempt organizations, employee plan, and supplemental documents.
Number of Returns Filed
These tables provide a summary of returns filed, by tax type and state, including income, estate, gift, employment, and excise taxes, as well as tax-exempt organizations, employee plan, and supplemental documents.
by Type of Return and State
• From 1995 to 1999, the number of returns filed are available by IRS region and district.
by type of tax and fiscal years
1999 1998 1997 1996 1995
Number of Returns Filed Electronically, by Type of Return and State
The number of tax returns filed electronically is available broken out by state. Also included are the breakouts for online filers and paid-preparer filed returns.
Selected Information from Returns Filed
For many years, IRS published information from filed returns. Details cover the presidential election campaign fund, contributions to reduce public debt, the earned income tax credit, and IRS master file accounts.
Fiscal Years available: (Back to top)
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
The following tables are part of the SOI Historical tables published in the SOI Bulletin.
(Back to top)
|Treasury Department Gross Tax Collections |
|Classified by: ||Amounts collected, by quarter and fiscal year, by type of return |
|Fiscal Years covered: ||1987-2007 |
|Federal Excise Taxes Reported to or Collected by the IRS, Alcohol and Tobacco Tax and Trade Bureau, and Customs Service |
|Type of excise tax (including luxury taxes, fuel, sport fishing equipment, environmental taxes, wine, beer, tobacco, etc.), by fiscal year |
| || |
Filing Projections for Selected Tax Returns
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|Projections of Federal Tax Return Filings: Calendar Years 2005-2012 |
| • SOI Bulletin article
||This article discusses the return projections in detail, including the effects of new forms and e-file. Projection highlights and methodology are also included. |
| || |
| • Data table
||Filing projections are broken out by form types and method of filing (where multiple options are available). |
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Page Last Reviewed or Updated: 25-Feb-2014
The 1040ez 2013
1040ez 2013 1. 1040ez 2013 Definitions You Need To Know Table of Contents Other options. 1040ez 2013 Exception. 1040ez 2013 Certain terms used in this publication are defined below. 1040ez 2013 The same term used in another publication may have a slightly different meaning. 1040ez 2013 Annual additions. 1040ez 2013 Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. 1040ez 2013 Annual benefits. 1040ez 2013 Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. 1040ez 2013 Business. 1040ez 2013 A business is an activity in which a profit motive is present and economic activity is involved. 1040ez 2013 Service as a newspaper carrier under age 18 or as a public official is not a business. 1040ez 2013 Common-law employee. 1040ez 2013 A common-law employee is any individual who, under common law, would have the status of an employee. 1040ez 2013 A leased employee can also be a common-law employee. 1040ez 2013 A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. 1040ez 2013 For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. 1040ez 2013 Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. 1040ez 2013 For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. 1040ez 2013 S. 1040ez 2013 citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. 1040ez 2013 However, an individual may be a common-law employee and a self-employed person as well. 1040ez 2013 For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. 1040ez 2013 In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. 1040ez 2013 However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. 1040ez 2013 Compensation. 1040ez 2013 Compensation for plan allocations is the pay a participant received from you for personal services for a year. 1040ez 2013 You can generally define compensation as including all the following payments. 1040ez 2013 Wages and salaries. 1040ez 2013 Fees for professional services. 1040ez 2013 Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. 1040ez 2013 Commissions and tips. 1040ez 2013 Fringe benefits. 1040ez 2013 Bonuses. 1040ez 2013 For a self-employed individual, compensation means the earned income, discussed later, of that individual. 1040ez 2013 Compensation generally includes amounts deferred in the following employee benefit plans. 1040ez 2013 These amounts are elective deferrals. 1040ez 2013 Qualified cash or deferred arrangement (section 401(k) plan). 1040ez 2013 Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. 1040ez 2013 Section 457 nonqualified deferred compensation plan. 1040ez 2013 Section 125 cafeteria plan. 1040ez 2013 However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. 1040ez 2013 The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. 1040ez 2013 Other options. 1040ez 2013 In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. 1040ez 2013 The employee's wages as defined for income tax withholding purposes. 1040ez 2013 The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. 1040ez 2013 The employee's social security wages (including elective deferrals). 1040ez 2013 Compensation generally cannot include either of the following items. 1040ez 2013 Nontaxable reimbursements or other expense allowances. 1040ez 2013 Deferred compensation (other than elective deferrals). 1040ez 2013 SIMPLE plans. 1040ez 2013 A special definition of compensation applies for SIMPLE plans. 1040ez 2013 See chapter 3. 1040ez 2013 Contribution. 1040ez 2013 A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. 1040ez 2013 Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. 1040ez 2013 Deduction. 1040ez 2013 A deduction is the plan contributions you can subtract from gross income on your federal income tax return. 1040ez 2013 Limits apply to the amount deductible. 1040ez 2013 Earned income. 1040ez 2013 Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. 1040ez 2013 You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. 1040ez 2013 Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. 1040ez 2013 It includes income from licensing the use of property other than goodwill. 1040ez 2013 Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. 1040ez 2013 If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. 1040ez 2013 Employer. 1040ez 2013 An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. 1040ez 2013 A sole proprietor is treated as his or her own employer for retirement plan purposes. 1040ez 2013 However, a partner is not an employer for retirement plan purposes. 1040ez 2013 Instead, the partnership is treated as the employer of each partner. 1040ez 2013 Highly compensated employee. 1040ez 2013 A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. 1040ez 2013 Leased employee. 1040ez 2013 A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. 1040ez 2013 Provides services to you under an agreement between you and a leasing organization. 1040ez 2013 Has performed services for you (or for you and related persons) substantially full time for at least 1 year. 1040ez 2013 Performs services under your primary direction or control. 1040ez 2013 Exception. 1040ez 2013 A leased employee is not treated as your employee if all the following conditions are met. 1040ez 2013 Leased employees are not more than 20% of your non-highly compensated work force. 1040ez 2013 The employee is covered under the leasing organization's qualified pension plan. 1040ez 2013 The leasing organization's plan is a money purchase pension plan that has all the following provisions. 1040ez 2013 Immediate participation. 1040ez 2013 (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. 1040ez 2013 ) Full and immediate vesting. 1040ez 2013 A nonintegrated employer contribution rate of at least 10% of compensation for each participant. 1040ez 2013 However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. 1040ez 2013 Net earnings from self-employment. 1040ez 2013 For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. 1040ez 2013 Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. 1040ez 2013 Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. 1040ez 2013 For the deduction limits, earned income is net earnings for personal services actually rendered to the business. 1040ez 2013 You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. 1040ez 2013 Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). 1040ez 2013 It does not include income passed through to shareholders of S corporations. 1040ez 2013 Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. 1040ez 2013 Distributions of other income or loss to limited partners are not net earnings from self-employment. 1040ez 2013 For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. 1040ez 2013 Qualified plan. 1040ez 2013 A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. 1040ez 2013 You can deduct contributions made to the plan for your employees. 1040ez 2013 Earnings on these contributions are generally tax free until distributed at retirement. 1040ez 2013 Profit-sharing, money purchase, and defined benefit plans are qualified plans. 1040ez 2013 A 401(k) plan is also a qualified plan. 1040ez 2013 Participant. 1040ez 2013 A participant is an eligible employee who is covered by your retirement plan. 1040ez 2013 See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. 1040ez 2013 Partner. 1040ez 2013 A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. 1040ez 2013 For retirement plans, a partner is treated as an employee of the partnership. 1040ez 2013 Self-employed individual. 1040ez 2013 An individual in business for himself or herself, and whose business is not incorporated, is self-employed. 1040ez 2013 Sole proprietors and partners are self-employed. 1040ez 2013 Self-employment can include part-time work. 1040ez 2013 Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. 1040ez 2013 See Common-law employee and Net earnings from self-employment , earlier. 1040ez 2013 In addition, certain fishermen may be considered self-employed for setting up a qualified plan. 1040ez 2013 See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. 1040ez 2013 Sole proprietor. 1040ez 2013 A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. 1040ez 2013 For retirement plans, a sole proprietor is treated as both an employer and an employee. 1040ez 2013 Prev Up Next Home More Online Publications