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2007 Taxes Online

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2007 Taxes Online

2007 taxes online 2. 2007 taxes online   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. 2007 taxes online Surviving spouse. 2007 taxes online Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. 2007 taxes online Payments from a state fund for victims of crime. 2007 taxes online Home Affordable Modification Program (HAMP). 2007 taxes online Mortgage assistance payments. 2007 taxes online Payments to reduce cost of winter energy use. 2007 taxes online Nutrition Program for the Elderly. 2007 taxes online Reemployment Trade Adjustment Assistance (RTAA). 2007 taxes online Generally, income is taxable unless it is specifically exempt (not taxed) by law. 2007 taxes online Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. 2007 taxes online Under special provisions of the law, certain items are partially or fully exempt from tax. 2007 taxes online Provisions that are of special interest to older taxpayers are discussed in this chapter. 2007 taxes online Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. 2007 taxes online In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 2007 taxes online You need not receive the compensation in cash for it to be taxable. 2007 taxes online Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. 2007 taxes online Volunteer work. 2007 taxes online   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. 2007 taxes online Retired Senior Volunteer Program (RSVP). 2007 taxes online Foster Grandparent Program. 2007 taxes online Senior Companion Program. 2007 taxes online Service Corps of Retired Executives (SCORE). 2007 taxes online Unemployment compensation. 2007 taxes online   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. 2007 taxes online More information. 2007 taxes online   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. 2007 taxes online Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. 2007 taxes online A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. 2007 taxes online A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. 2007 taxes online A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. 2007 taxes online More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. 2007 taxes online Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. 2007 taxes online Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. 2007 taxes online These are discussed in Publication 590. 2007 taxes online If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. 2007 taxes online If you do not file Form 8606 with your return, you may have to pay a $50 penalty. 2007 taxes online Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. 2007 taxes online Early distributions. 2007 taxes online   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. 2007 taxes online You must include early distributions of taxable amounts in your gross income. 2007 taxes online These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. 2007 taxes online For purposes of the additional 10% tax, an IRA is a qualified retirement plan. 2007 taxes online For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. 2007 taxes online After age 59½ and before age 70½. 2007 taxes online   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. 2007 taxes online Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. 2007 taxes online Required distributions. 2007 taxes online   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. 2007 taxes online See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. 2007 taxes online If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. 2007 taxes online For purposes of the 50% excise tax, an IRA is a qualified retirement plan. 2007 taxes online For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. 2007 taxes online See also Excess Accumulations (Insufficient Distributions) in Publication 590. 2007 taxes online Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. 2007 taxes online However, see Insurance Premiums for Retired Public Safety Officers , later. 2007 taxes online If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). 2007 taxes online This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. 2007 taxes online The rest of each payment is taxable. 2007 taxes online However, see Insurance Premiums for Retired Public Safety Officers , later. 2007 taxes online You figure the tax-free part of the payment using one of the following methods. 2007 taxes online Simplified Method. 2007 taxes online You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). 2007 taxes online You cannot use this method if your annuity is paid under a nonqualified plan. 2007 taxes online General Rule. 2007 taxes online You must use this method if your annuity is paid under a nonqualified plan. 2007 taxes online You generally cannot use this method if your annuity is paid under a qualified plan. 2007 taxes online Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. 2007 taxes online You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. 2007 taxes online Exclusion limit. 2007 taxes online   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. 2007 taxes online Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. 2007 taxes online This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. 2007 taxes online   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. 2007 taxes online If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. 2007 taxes online The total exclusion may be more than your cost. 2007 taxes online Cost. 2007 taxes online   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). 2007 taxes online Your total cost in the plan includes everything that you paid. 2007 taxes online It also includes amounts your employer contributed that were taxable to you when paid. 2007 taxes online However, see Foreign employment contributions , later. 2007 taxes online   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. 2007 taxes online   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. 2007 taxes online    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2007 taxes online , that you receive. 2007 taxes online Foreign employment contributions. 2007 taxes online   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. 2007 taxes online For details, see Foreign employment contributions in Publication 575. 2007 taxes online Withholding. 2007 taxes online   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. 2007 taxes online However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. 2007 taxes online (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. 2007 taxes online ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. 2007 taxes online   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. 2007 taxes online Simplified Method. 2007 taxes online   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. 2007 taxes online For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. 2007 taxes online For any other annuity, this number is the number of monthly annuity payments under the contract. 2007 taxes online Who must use the Simplified Method. 2007 taxes online   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). 2007 taxes online   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. 2007 taxes online If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. 2007 taxes online Guaranteed payments. 2007 taxes online   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. 2007 taxes online If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. 2007 taxes online Who cannot use the Simplified Method. 2007 taxes online   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). 2007 taxes online   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. 2007 taxes online If you did not have to use the General Rule, you could have chosen to use it. 2007 taxes online You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. 2007 taxes online   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. 2007 taxes online   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. 2007 taxes online Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. 2007 taxes online   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. 2007 taxes online How to use the Simplified Method. 2007 taxes online   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. 2007 taxes online Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. 2007 taxes online   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. 2007 taxes online How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. 2007 taxes online For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. 2007 taxes online    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. 2007 taxes online Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. 2007 taxes online Single-life annuity. 2007 taxes online   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. 2007 taxes online Enter on line 3 the number shown for your age on your annuity starting date. 2007 taxes online This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. 2007 taxes online Multiple-lives annuity. 2007 taxes online   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. 2007 taxes online Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. 2007 taxes online For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. 2007 taxes online For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. 2007 taxes online Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. 2007 taxes online   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. 2007 taxes online Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. 2007 taxes online This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. 2007 taxes online Fixed-period annuities. 2007 taxes online   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. 2007 taxes online Line 6. 2007 taxes online   The amount on line 6 should include all amounts that could have been recovered in prior years. 2007 taxes online If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. 2007 taxes online    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. 2007 taxes online Example. 2007 taxes online Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. 2007 taxes online Bill's annuity starting date is January 1, 2013. 2007 taxes online The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. 2007 taxes online Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. 2007 taxes online Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. 2007 taxes online Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. 2007 taxes online See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. 2007 taxes online You can find a blank version of this worksheet in Publication 575. 2007 taxes online (The references in the illustrated worksheet are to sections in Publication 575). 2007 taxes online His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. 2007 taxes online Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). 2007 taxes online Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. 2007 taxes online The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. 2007 taxes online If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. 2007 taxes online This deduction is not subject to the 2%-of-adjusted-gross-income limit. 2007 taxes online Worksheet 2-A. 2007 taxes online Simplified Method Worksheet—Illustrated 1. 2007 taxes online Enter the total pension or annuity payments received this year. 2007 taxes online Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. 2007 taxes online $ 14,400 2. 2007 taxes online Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. 2007 taxes online 31,000   Note. 2007 taxes online If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). 2007 taxes online Otherwise, go to line 3. 2007 taxes online     3. 2007 taxes online Enter the appropriate number from Table 1 below. 2007 taxes online But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. 2007 taxes online 310 4. 2007 taxes online Divide line 2 by the number on line 3 4. 2007 taxes online 100 5. 2007 taxes online Multiply line 4 by the number of months for which this year's payments were made. 2007 taxes online If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. 2007 taxes online Otherwise, go to line 6 5. 2007 taxes online 1,200 6. 2007 taxes online Enter any amount previously recovered tax free in years after 1986. 2007 taxes online This is the amount shown on line 10 of your worksheet for last year 6. 2007 taxes online 0 7. 2007 taxes online Subtract line 6 from line 2 7. 2007 taxes online 31,000 8. 2007 taxes online Enter the smaller of line 5 or line 7 8. 2007 taxes online 1,200 9. 2007 taxes online Taxable amount for year. 2007 taxes online Subtract line 8 from line 1. 2007 taxes online Enter the result, but not less than zero. 2007 taxes online Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. 2007 taxes online Note. 2007 taxes online If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. 2007 taxes online If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. 2007 taxes online 9. 2007 taxes online $ 13,200 10. 2007 taxes online Was your annuity starting date before 1987? □ Yes. 2007 taxes online STOP. 2007 taxes online Do not complete the rest of this worksheet. 2007 taxes online  ☑ No. 2007 taxes online Add lines 6 and 8. 2007 taxes online This is the amount you have recovered tax free through 2013. 2007 taxes online You will need this number if you need to fill out this worksheet next year. 2007 taxes online 10. 2007 taxes online 1,200 11. 2007 taxes online Balance of cost to be recovered. 2007 taxes online Subtract line 10 from line 2. 2007 taxes online If zero, you will not have to complete this worksheet next year. 2007 taxes online The payments you receive next year will generally be fully taxable 11. 2007 taxes online $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. 2007 taxes online   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . 2007 taxes online . 2007 taxes online . 2007 taxes online   BEFORE November 19, 1996, enter on line 3 . 2007 taxes online . 2007 taxes online . 2007 taxes online AFTER November 18, 1996, enter on line 3 . 2007 taxes online . 2007 taxes online . 2007 taxes online   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . 2007 taxes online . 2007 taxes online . 2007 taxes online   THEN enter on line 3 . 2007 taxes online . 2007 taxes online . 2007 taxes online         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. 2007 taxes online   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. 2007 taxes online   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. 2007 taxes online The retiree's cost has already been recovered tax free. 2007 taxes online   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. 2007 taxes online The resulting tax-free amount will then remain fixed. 2007 taxes online Any increases in the survivor annuity are fully taxable. 2007 taxes online   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. 2007 taxes online See Simplified Method , earlier. 2007 taxes online How to report. 2007 taxes online   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. 2007 taxes online If your pension or annuity is fully taxable, enter it on line 16b. 2007 taxes online Do not make an entry on line 16a. 2007 taxes online   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. 2007 taxes online If your pension or annuity is fully taxable, enter it on line 12b. 2007 taxes online Do not make an entry on line 12a. 2007 taxes online   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. 2007 taxes online If your pension or annuity is fully taxable, enter it on line 17b. 2007 taxes online Do not make an entry on line 17a. 2007 taxes online Example. 2007 taxes online You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. 2007 taxes online You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). 2007 taxes online The entire $1,200 is taxable. 2007 taxes online You include $1,200 only on Form 1040, line 16b. 2007 taxes online Joint return. 2007 taxes online   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. 2007 taxes online Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. 2007 taxes online Form 1099-R. 2007 taxes online   You should receive a Form 1099-R for your pension or annuity. 2007 taxes online Form 1099-R shows your pension or annuity for the year and any income tax withheld. 2007 taxes online You should receive a Form W-2 if you receive distributions from certain nonqualified plans. 2007 taxes online You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. 2007 taxes online Generally, you should be sent these forms by January 31, 2014. 2007 taxes online Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. 2007 taxes online Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. 2007 taxes online For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. 2007 taxes online The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. 2007 taxes online See Tax on Early Distributions, later. 2007 taxes online Lump-sum distributions. 2007 taxes online   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. 2007 taxes online The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. 2007 taxes online The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. 2007 taxes online You may be able to use the 10-year tax option to figure tax on the ordinary income part. 2007 taxes online Form 1099-R. 2007 taxes online   If you receive a total distribution from a plan, you should receive a Form 1099-R. 2007 taxes online If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. 2007 taxes online The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. 2007 taxes online More information. 2007 taxes online   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. 2007 taxes online Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. 2007 taxes online The tax applies to the taxable part of the distribution. 2007 taxes online For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). 2007 taxes online  An IRA is also a qualified retirement plan for purposes of this tax. 2007 taxes online General exceptions to tax. 2007 taxes online   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. 2007 taxes online Additional exceptions. 2007 taxes online   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. 2007 taxes online See Publication 575 for details. 2007 taxes online Reporting tax. 2007 taxes online   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. 2007 taxes online 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. 2007 taxes online See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. 2007 taxes online Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. 2007 taxes online Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. 2007 taxes online However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. 2007 taxes online For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). 2007 taxes online  An IRA is also a qualified retirement plan for purposes of this tax. 2007 taxes online An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. 2007 taxes online 5% owners. 2007 taxes online   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. 2007 taxes online See Publication 575 for more information. 2007 taxes online Amount of tax. 2007 taxes online   If you do not receive the required minimum distribution, you are subject to an additional tax. 2007 taxes online The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. 2007 taxes online You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. 2007 taxes online Form 5329. 2007 taxes online   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. 2007 taxes online Additional information. 2007 taxes online   For more detailed information on the tax on excess accumulation, see Publication 575. 2007 taxes online Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. 2007 taxes online The premiums can be for coverage for you, your spouse, or dependent(s). 2007 taxes online The distribution must be made directly from the plan to the insurance provider. 2007 taxes online You can exclude from income the smaller of the amount of the insurance premiums or $3,000. 2007 taxes online You can only make this election for amounts that would otherwise be included in your income. 2007 taxes online The amount excluded from your income cannot be used to claim a medical expense deduction. 2007 taxes online An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. 2007 taxes online If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. 2007 taxes online The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. 2007 taxes online Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. 2007 taxes online Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. 2007 taxes online Enter “PSO” next to the appropriate line on which you report the taxable amount. 2007 taxes online Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. 2007 taxes online These categories are treated differently for income tax purposes. 2007 taxes online Social security equivalent benefits. 2007 taxes online   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2007 taxes online This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. 2007 taxes online (See Social Security and Equivalent Railroad Retirement Benefits , later. 2007 taxes online ) Non-social security equivalent benefits. 2007 taxes online   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). 2007 taxes online It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. 2007 taxes online This category of benefits is treated as an amount received from a qualified employee plan. 2007 taxes online This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. 2007 taxes online Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. 2007 taxes online More information. 2007 taxes online   For more information about railroad retirement benefits, see Publication 575. 2007 taxes online Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. 2007 taxes online But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. 2007 taxes online For more information, including information about veterans' benefits and insurance, see Publication 525. 2007 taxes online Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. 2007 taxes online Social security benefits include monthly retirement, survivor, and disability benefits. 2007 taxes online They do not include supplemental security income (SSI) payments, which are not taxable. 2007 taxes online Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2007 taxes online They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. 2007 taxes online If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. 2007 taxes online Are Any of Your Benefits Taxable? Note. 2007 taxes online When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. 2007 taxes online  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. 2007 taxes online When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. 2007 taxes online S. 2007 taxes online savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. 2007 taxes online Figuring total income. 2007 taxes online   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. 2007 taxes online If that total amount is more than your base amount, part of your benefits may be taxable. 2007 taxes online If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. 2007 taxes online Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. 2007 taxes online If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. 2007 taxes online If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. 2007 taxes online Worksheet 2-B. 2007 taxes online A Quick Way To Check if Your Benefits May Be Taxable A. 2007 taxes online Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. 2007 taxes online Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. 2007 taxes online (If you received more than one form, combine the amounts from box 5  and enter the total. 2007 taxes online ) A. 2007 taxes online     Note. 2007 taxes online If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. 2007 taxes online     B. 2007 taxes online Enter one-half of the amount on line A B. 2007 taxes online   C. 2007 taxes online Enter your taxable pensions, wages, interest, dividends, and other taxable income C. 2007 taxes online   D. 2007 taxes online Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. 2007 taxes online S. 2007 taxes online savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. 2007 taxes online   E. 2007 taxes online Add lines B, C, and D and enter the total E. 2007 taxes online   F. 2007 taxes online If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. 2007 taxes online   G. 2007 taxes online Is the amount on line F less than or equal to the amount on line E? □ No. 2007 taxes online None of your benefits are taxable this year. 2007 taxes online  □ Yes. 2007 taxes online Some of your benefits may be taxable. 2007 taxes online To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. 2007 taxes online     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. 2007 taxes online Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. 2007 taxes online It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. 2007 taxes online If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. 2007 taxes online Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. 2007 taxes online Your repayments are shown in box 4. 2007 taxes online The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). 2007 taxes online Use the amount in box 5 to figure whether any of your benefits are taxable. 2007 taxes online Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. 2007 taxes online If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. 2007 taxes online If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. 2007 taxes online For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. 2007 taxes online How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. 2007 taxes online Generally, the higher that total amount, the greater the taxable part of your benefits. 2007 taxes online Maximum taxable part. 2007 taxes online   The taxable part of your benefits usually cannot be more than 50%. 2007 taxes online However, up to 85% of your benefits can be taxable if either of the following situations applies to you. 2007 taxes online The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). 2007 taxes online You are married filing separately and lived with your spouse at any time during 2013. 2007 taxes online   If you are a nonresident alien, 85% of your benefits are taxable. 2007 taxes online However, this income is exempt under some tax treaties. 2007 taxes online Which worksheet to use. 2007 taxes online   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. 2007 taxes online However, you will need to use a different worksheet(s) if any of the following situations applies to you. 2007 taxes online You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. 2007 taxes online In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. 2007 taxes online Situation (1) does not apply and you take one or more of the following exclusions. 2007 taxes online Interest from qualified U. 2007 taxes online S. 2007 taxes online savings bonds (Form 8815). 2007 taxes online Employer-provided adoption benefits (Form 8839). 2007 taxes online Foreign earned income or housing (Form 2555 or Form 2555-EZ). 2007 taxes online Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. 2007 taxes online In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. 2007 taxes online You received a lump-sum payment for an earlier year. 2007 taxes online In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. 2007 taxes online See Lump-Sum Election , later. 2007 taxes online How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. 2007 taxes online You cannot use Form 1040EZ. 2007 taxes online Reporting on Form 1040. 2007 taxes online   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. 2007 taxes online If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. 2007 taxes online Reporting on Form 1040A. 2007 taxes online   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. 2007 taxes online If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. 2007 taxes online Reporting on Form 1040NR. 2007 taxes online   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. 2007 taxes online Benefits not taxable. 2007 taxes online   If you are filing Form 1040EZ, do not report any benefits on your tax return. 2007 taxes online If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. 2007 taxes online Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2007 taxes online If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. 2007 taxes online Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. 2007 taxes online This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. 2007 taxes online No part of the lump-sum death benefit is subject to tax. 2007 taxes online For more information about the lump-sum death benefit, visit the Social Security Administration website at www. 2007 taxes online SSA. 2007 taxes online gov, and use keyword: death benefit. 2007 taxes online Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. 2007 taxes online However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. 2007 taxes online You can elect this method if it lowers your taxable benefits. 2007 taxes online See Publication 915 for more information. 2007 taxes online Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. 2007 taxes online If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. 2007 taxes online If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. 2007 taxes online If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. 2007 taxes online S. 2007 taxes online Railroad Retirement Board field office. 2007 taxes online Joint return. 2007 taxes online   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. 2007 taxes online You do this to get your net benefits when figuring if your combined benefits are taxable. 2007 taxes online Repayment of benefits received in an earlier year. 2007 taxes online   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. 2007 taxes online   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. 2007 taxes online Claim it on Schedule A (Form 1040), line 23. 2007 taxes online   If this deduction is more than $3,000, you have to follow some special instructions. 2007 taxes online See Publication 915 for those instructions. 2007 taxes online Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. 2007 taxes online If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. 2007 taxes online However, certain payments may not be taxable to you. 2007 taxes online Some of these payments are discussed later in this section. 2007 taxes online Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. 2007 taxes online Cost paid by you. 2007 taxes online   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. 2007 taxes online If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. 2007 taxes online Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. 2007 taxes online You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. 2007 taxes online Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. 2007 taxes online If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. 2007 taxes online See Credit for the Elderly or the Disabled, later. 2007 taxes online For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. 2007 taxes online Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. 2007 taxes online Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. 2007 taxes online For more information on pensions and annuities, see Publication 575. 2007 taxes online Retirement and profit-sharing plans. 2007 taxes online   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. 2007 taxes online The payments must be reported as a pension or annuity. 2007 taxes online Accrued leave payment. 2007 taxes online   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. 2007 taxes online The payment is not a disability payment. 2007 taxes online Include it in your income in the tax year you receive it. 2007 taxes online Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. 2007 taxes online Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. 2007 taxes online However, the amount you can exclude may be limited. 2007 taxes online Long-term care insurance contracts are discussed in more detail in Publication 525. 2007 taxes online Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. 2007 taxes online The exemption also applies to your survivors. 2007 taxes online The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. 2007 taxes online If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 2007 taxes online For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. 2007 taxes online Return to work. 2007 taxes online   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. 2007 taxes online Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. 2007 taxes online Federal Employees' Compensation Act (FECA). 2007 taxes online   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. 2007 taxes online However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. 2007 taxes online Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. 2007 taxes online Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. 2007 taxes online    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 2007 taxes online For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. 2007 taxes online Other compensation. 2007 taxes online   Many other amounts you receive as compensation for sickness or injury are not taxable. 2007 taxes online These include the following amounts. 2007 taxes online Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. 2007 taxes online Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. 2007 taxes online Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). 2007 taxes online This compensation must be based only on the injury and not on the period of your absence from work. 2007 taxes online These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. 2007 taxes online Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. 2007 taxes online This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. 2007 taxes online Proceeds not received in installments. 2007 taxes online   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. 2007 taxes online If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. 2007 taxes online Proceeds received in installments. 2007 taxes online   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. 2007 taxes online   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. 2007 taxes online Include anything over this excluded part in your income as interest. 2007 taxes online Installments for life. 2007 taxes online   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. 2007 taxes online If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. 2007 taxes online Surviving spouse. 2007 taxes online   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. 2007 taxes online If you remarry, you can continue to take the exclusion. 2007 taxes online Surrender of policy for cash. 2007 taxes online   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. 2007 taxes online In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. 2007 taxes online You should receive a Form 1099-R showing the total proceeds and the taxable part. 2007 taxes online Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. 2007 taxes online Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. 2007 taxes online Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. 2007 taxes online To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. 2007 taxes online Include in your income the part of the lump-sum payment that is more than your cost. 2007 taxes online Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. 2007 taxes online The tax treatment of an annuity is explained in Publication 575. 2007 taxes online For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. 2007 taxes online This election must be made within 60 days after the lump-sum payment first becomes payable to you. 2007 taxes online Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. 2007 taxes online However, see Exception , later. 2007 taxes online For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. 2007 taxes online Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. 2007 taxes online In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. 2007 taxes online Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. 2007 taxes online To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. 2007 taxes online Terminally or chronically ill defined. 2007 taxes online   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. 2007 taxes online A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. 2007 taxes online The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. 2007 taxes online The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. 2007 taxes online Exception. 2007 taxes online   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. 2007 taxes online Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. 2007 taxes online Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. 2007 taxes online You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. 2007 taxes online Main home. 2007 taxes online   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. 2007 taxes online Repaying the first-time homebuyer credit because you sold your home. 2007 taxes online   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. 2007 taxes online For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. 2007 taxes online   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. 2007 taxes online If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. 2007 taxes online If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. 2007 taxes online   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. 2007 taxes online Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. 2007 taxes online You meet the ownership test. 2007 taxes online You meet the use test. 2007 taxes online During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 2007 taxes online You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . 2007 taxes online Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 2007 taxes online This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). 2007 taxes online Exception to ownership and use tests. 2007 taxes online   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. 2007 taxes online Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. 2007 taxes online The maximum amount you can exclude will be reduced. 2007 taxes online See Publication 523, Selling Your Home, for more information. 2007 taxes online Exception to use test for individuals with a disability. 2007 taxes online   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. 2007 taxes online Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. 2007 taxes online   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. 2007 taxes online Exception to ownership test for property acquired in a like-kind exchange. 2007 taxes online   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. 2007 taxes online This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. 2007 taxes online A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. 2007 taxes online See Publication 523 for more information. 2007 taxes online Period of nonqualified use. 2007 taxes online   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. 2007 taxes online Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. 2007 taxes online See Publication 523 for more information. 2007 taxes online Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. 2007 taxes online However, see Special rules for joint returns , next. 2007 taxes online Special rules for joint returns. 2007 taxes online   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 2007 taxes online You are married and file a joint return for the year. 2007 taxes online Either you or your spouse meets the ownership test. 2007 taxes online Both you and your spouse meet the use test. 2007 taxes online During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. 2007 taxes online Sale of home by surviving spouse. 2007 taxes online   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. 2007 taxes online   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. 2007 taxes online The sale or exchange took place no more than 2 years after the date of death of your spouse. 2007 taxes online You have not remarried. 2007 taxes online You and your spouse met the use test at the time of your spouse's death. 2007 taxes online You or your spouse met the ownership test at the time of your spouse's death. 2007 taxes online Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. 2007 taxes online Home transferred from spouse. 2007 taxes online   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. 2007 taxes online Use of home after divorce. 2007 taxes online   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. 2007 taxes online Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. 2007 taxes online However, you must meet the ownership and use tests. 2007 taxes online See Publication 523 for more information. 2007 taxes online Depreciation after May 6, 1997. 2007 taxes online   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. 2007 taxes online See Publication 523 for more information. 2007 taxes online Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. 2007 taxes online If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. 2007 taxes online Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. 2007 taxes online If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. 2007 taxes online See Publication 523 for more information. 2007 taxes online Reverse Mortgages A revers
 
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The 2007 Taxes Online

2007 taxes online 9. 2007 taxes online   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. 2007 taxes online Depletion unit. 2007 taxes online Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 2007 taxes online The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 2007 taxes online There are two ways of figuring depletion: cost depletion and percentage depletion. 2007 taxes online For mineral property, you generally must use the method that gives you the larger deduction. 2007 taxes online For standing timber, you must use cost depletion. 2007 taxes online Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. 2007 taxes online More than one person can have an economic interest in the same mineral deposit or timber. 2007 taxes online In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2007 taxes online You have an economic interest if both the following apply. 2007 taxes online You have acquired by investment any interest in mineral deposits or standing timber. 2007 taxes online You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. 2007 taxes online A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. 2007 taxes online A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 2007 taxes online Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 2007 taxes online Basis adjustment for depletion. 2007 taxes online   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 2007 taxes online Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 2007 taxes online For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. 2007 taxes online You can treat two or more separate interests as one property or as separate properties. 2007 taxes online See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 2007 taxes online There are two ways of figuring depletion on mineral property. 2007 taxes online Cost depletion. 2007 taxes online Percentage depletion. 2007 taxes online Generally, you must use the method that gives you the larger deduction. 2007 taxes online However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 2007 taxes online See Oil and Gas Wells , later. 2007 taxes online Cost Depletion To figure cost depletion you must first determine the following. 2007 taxes online The property's basis for depletion. 2007 taxes online The total recoverable units of mineral in the property's natural deposit. 2007 taxes online The number of units of mineral sold during the tax year. 2007 taxes online Basis for depletion. 2007 taxes online   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 2007 taxes online Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 2007 taxes online The residual value of land and improvements at the end of operations. 2007 taxes online The cost or value of land acquired for purposes other than mineral production. 2007 taxes online Adjusted basis. 2007 taxes online   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. 2007 taxes online Your adjusted basis can never be less than zero. 2007 taxes online See Publication 551, Basis of Assets, for more information on adjusted basis. 2007 taxes online Total recoverable units. 2007 taxes online   The total recoverable units is the sum of the following. 2007 taxes online The number of units of mineral remaining at the end of the year (including units recovered but not sold). 2007 taxes online The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 2007 taxes online   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. 2007 taxes online You must include ores and minerals that are developed, in sight, blocked out, or assured. 2007 taxes online You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 2007 taxes online But see Elective safe harbor for owners of oil and gas property , later. 2007 taxes online Number of units sold. 2007 taxes online   You determine the number of units sold during the tax year based on your method of accounting. 2007 taxes online Use the following table to make this determination. 2007 taxes online    IF you  use . 2007 taxes online . 2007 taxes online . 2007 taxes online THEN the units sold during the year are . 2007 taxes online . 2007 taxes online . 2007 taxes online The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 2007 taxes online An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 2007 taxes online   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. 2007 taxes online Figuring the cost depletion deduction. 2007 taxes online   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. 2007 taxes online Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 2007 taxes online Rate per unit. 2007 taxes online 2 Multiply the rate per unit by units sold during the tax year. 2007 taxes online Cost depletion deduction. 2007 taxes online You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 2007 taxes online Elective safe harbor for owners of oil and gas property. 2007 taxes online   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 2007 taxes online If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 2007 taxes online For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 2007 taxes online irs. 2007 taxes online gov/pub/irs-irbs/irb04-10. 2007 taxes online pdf. 2007 taxes online   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. 2007 taxes online The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 2007 taxes online The election, if made, is effective for the tax year in which it is made and all later years. 2007 taxes online It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 2007 taxes online Once revoked, it cannot be re-elected for the next 5 years. 2007 taxes online Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. 2007 taxes online The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . 2007 taxes online Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 2007 taxes online Gross income. 2007 taxes online   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 2007 taxes online Any rents or royalties you paid or incurred for the property. 2007 taxes online The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. 2007 taxes online A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 2007 taxes online   Use the following fraction to figure the part of the bonus you must subtract. 2007 taxes online No. 2007 taxes online of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. 2007 taxes online For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 2007 taxes online Taxable income limit. 2007 taxes online   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. 2007 taxes online   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. 2007 taxes online These deductible items include, but are not limited to, the following. 2007 taxes online Operating expenses. 2007 taxes online Certain selling expenses. 2007 taxes online Administrative and financial overhead. 2007 taxes online Depreciation. 2007 taxes online Intangible drilling and development costs. 2007 taxes online Exploration and development expenditures. 2007 taxes online Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 2007 taxes online Losses sustained. 2007 taxes online   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 2007 taxes online Do not deduct any net operating loss deduction from the gross income from the property. 2007 taxes online Corporations do not deduct charitable contributions from the gross income from the property. 2007 taxes online If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. 2007 taxes online See section 1. 2007 taxes online 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 2007 taxes online Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 2007 taxes online You are either an independent producer or a royalty owner. 2007 taxes online The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 2007 taxes online If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 2007 taxes online For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. 2007 taxes online Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. 2007 taxes online However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. 2007 taxes online For information on figuring the deduction, see Figuring percentage depletion , later. 2007 taxes online Refiners who cannot claim percentage depletion. 2007 taxes online   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. 2007 taxes online The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. 2007 taxes online Related person. 2007 taxes online   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. 2007 taxes online For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 2007 taxes online A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 2007 taxes online For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. 2007 taxes online The value of the outstanding stock of a corporation. 2007 taxes online The interest in the profits or capital of a partnership. 2007 taxes online The beneficial interests in an estate or trust. 2007 taxes online Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. 2007 taxes online Retailers who cannot claim percentage depletion. 2007 taxes online   You cannot claim percentage depletion if both the following apply. 2007 taxes online You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 2007 taxes online Through a retail outlet operated by you or a related person. 2007 taxes online To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. 2007 taxes online To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. 2007 taxes online The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. 2007 taxes online   For the purpose of determining if this rule applies, do not count the following. 2007 taxes online Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 2007 taxes online Bulk sales of aviation fuels to the Department of Defense. 2007 taxes online Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. 2007 taxes online Related person. 2007 taxes online   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 2007 taxes online Sales through a related person. 2007 taxes online   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. 2007 taxes online   You are not considered to be selling through a related person who is a retailer if all the following apply. 2007 taxes online You do not have a significant ownership interest in the retailer. 2007 taxes online You sell your production to persons who are not related to either you or the retailer. 2007 taxes online The retailer does not buy oil or natural gas from your customers or persons related to your customers. 2007 taxes online There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. 2007 taxes online Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. 2007 taxes online Transferees who cannot claim percentage depletion. 2007 taxes online   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. 2007 taxes online For a definition of the term “transfer,” see section 1. 2007 taxes online 613A-7(n) of the regulations. 2007 taxes online For a definition of the term “interest in proven oil or gas property,” see section 1. 2007 taxes online 613A-7(p) of the regulations. 2007 taxes online Figuring percentage depletion. 2007 taxes online   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. 2007 taxes online If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. 2007 taxes online If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. 2007 taxes online   In addition, there is a limit on the percentage depletion deduction. 2007 taxes online See Taxable income limit , later. 2007 taxes online Average daily production. 2007 taxes online   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. 2007 taxes online Partial interest. 2007 taxes online   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. 2007 taxes online   You have a partial interest in the production from a property if you have a net profits interest in the property. 2007 taxes online To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. 2007 taxes online To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 2007 taxes online Then multiply the total production from the property by your percentage participation to figure your share of the production. 2007 taxes online Example. 2007 taxes online Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 2007 taxes online During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 2007 taxes online Javier had expenses of $90,000 attributable to the property. 2007 taxes online The property generated a net profit of $110,000 ($200,000 − $90,000). 2007 taxes online Pablo received income of $22,000 ($110,000 × . 2007 taxes online 20) for his net profits interest. 2007 taxes online Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). 2007 taxes online Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 2007 taxes online Depletable oil or natural gas quantity. 2007 taxes online   Generally, your depletable oil quantity is 1,000 barrels. 2007 taxes online Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. 2007 taxes online If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. 2007 taxes online Example. 2007 taxes online You have both oil and natural gas production. 2007 taxes online To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 2007 taxes online Your depletable natural gas quantity is 2. 2007 taxes online 16 million cubic feet of gas (360 × 6000). 2007 taxes online You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 2007 taxes online If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. 2007 taxes online Also, see Notice 2012-50, available at www. 2007 taxes online irs. 2007 taxes online gov/irb/2012–31_IRB/index. 2007 taxes online html. 2007 taxes online Business entities and family members. 2007 taxes online   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. 2007 taxes online Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). 2007 taxes online You and your spouse and minor children. 2007 taxes online A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. 2007 taxes online Controlled group of corporations. 2007 taxes online   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 2007 taxes online They share the depletable quantity. 2007 taxes online A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. 2007 taxes online ” Gross income from the property. 2007 taxes online   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. 2007 taxes online If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. 2007 taxes online   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. 2007 taxes online   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 2007 taxes online Average daily production exceeds depletable quantities. 2007 taxes online   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. 2007 taxes online Figure your average daily production of oil or natural gas for the year. 2007 taxes online Figure your depletable oil or natural gas quantity for the year. 2007 taxes online Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 2007 taxes online Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). 2007 taxes online This is your depletion allowance for that property for the year. 2007 taxes online Taxable income limit. 2007 taxes online   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. 2007 taxes online 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. 2007 taxes online For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 2007 taxes online 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. 2007 taxes online You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 2007 taxes online Add it to your depletion allowance (before applying any limits) for the following year. 2007 taxes online Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 2007 taxes online (However, see Electing large partnerships must figure depletion allowance , later. 2007 taxes online ) Each partner or shareholder must decide whether to use cost or percentage depletion. 2007 taxes online If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. 2007 taxes online Partner's or shareholder's adjusted basis. 2007 taxes online   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. 2007 taxes online The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 2007 taxes online   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. 2007 taxes online However, in some cases, it is figured according to the partner's interest in partnership income. 2007 taxes online   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. 2007 taxes online Recordkeeping. 2007 taxes online Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. 2007 taxes online The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 2007 taxes online The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. 2007 taxes online Reporting the deduction. 2007 taxes online   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). 2007 taxes online Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 2007 taxes online The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 2007 taxes online The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. 2007 taxes online Form 6198, At-Risk Limitations. 2007 taxes online Form 8582, Passive Activity Loss Limitations. 2007 taxes online Electing large partnerships must figure depletion allowance. 2007 taxes online   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 2007 taxes online The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. 2007 taxes online Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 2007 taxes online   An electing large partnership is one that meets both the following requirements. 2007 taxes online The partnership had 100 or more partners in the preceding year. 2007 taxes online The partnership chooses to be an electing large partnership. 2007 taxes online Disqualified persons. 2007 taxes online   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 2007 taxes online Disqualified persons must figure it themselves, as explained earlier. 2007 taxes online   All the following are disqualified persons. 2007 taxes online Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2007 taxes online Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2007 taxes online Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. 2007 taxes online Average daily production is discussed earlier. 2007 taxes online Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. 2007 taxes online Natural gas sold under a fixed contract. 2007 taxes online   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 2007 taxes online This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. 2007 taxes online The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 2007 taxes online Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. 2007 taxes online Natural gas from geopressured brine. 2007 taxes online   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 2007 taxes online This is natural gas that is both the following. 2007 taxes online Produced from a well you began to drill after September 1978 and before 1984. 2007 taxes online Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 2007 taxes online Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 2007 taxes online Mines and other natural deposits. 2007 taxes online   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. 2007 taxes online   The following is a list of the percentage depletion rates for the more common minerals. 2007 taxes online DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. 2007 taxes online Corporate deduction for iron ore and coal. 2007 taxes online   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). 2007 taxes online Gross income from the property. 2007 taxes online   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. 2007 taxes online Mining includes all the following. 2007 taxes online Extracting ores or minerals from the ground. 2007 taxes online Applying certain treatment processes described later. 2007 taxes online Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. 2007 taxes online Excise tax. 2007 taxes online   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. 2007 taxes online Extraction. 2007 taxes online   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. 2007 taxes online This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. 2007 taxes online Treatment processes. 2007 taxes online   The processes included as mining depend on the ore or mineral mined. 2007 taxes online To qualify as mining, the treatment processes must be applied by the mine owner or operator. 2007 taxes online For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 2007 taxes online Transportation of more than 50 miles. 2007 taxes online   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. 2007 taxes online    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. 2007 taxes online Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. 2007 taxes online For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 2007 taxes online irs. 2007 taxes online gov/irb/2013-01_IRB/ar11. 2007 taxes online html. 2007 taxes online Disposal of coal or iron ore. 2007 taxes online   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 2007 taxes online You disposed of it after holding it for more than 1 year. 2007 taxes online You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 2007 taxes online Treat any gain on the disposition as a capital gain. 2007 taxes online Disposal to related person. 2007 taxes online   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 2007 taxes online A related person (as listed in chapter 2 of Publication 544). 2007 taxes online A person owned or controlled by the same interests that own or control you. 2007 taxes online Geothermal deposits. 2007 taxes online   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 2007 taxes online A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 2007 taxes online For percentage depletion purposes, a geothermal deposit is not considered a gas well. 2007 taxes online   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 2007 taxes online See Gross income from the property , earlier, under Oil and Gas Wells. 2007 taxes online Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 2007 taxes online Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2007 taxes online A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. 2007 taxes online Bonuses and advanced royalties. 2007 taxes online   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. 2007 taxes online If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. 2007 taxes online Figuring cost depletion. 2007 taxes online   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. 2007 taxes online To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. 2007 taxes online Figuring percentage depletion. 2007 taxes online   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . 2007 taxes online Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. 2007 taxes online However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. 2007 taxes online Ending the lease. 2007 taxes online   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. 2007 taxes online Do this for the year the lease ends or is abandoned. 2007 taxes online Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 2007 taxes online   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. 2007 taxes online Include this amount in income for the year the lease ends. 2007 taxes online Increase your adjusted basis in the property by the amount you include in income. 2007 taxes online Delay rentals. 2007 taxes online   These are payments for deferring development of the property. 2007 taxes online Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 2007 taxes online These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 2007 taxes online Timber You can figure timber depletion only by the cost method. 2007 taxes online Percentage depletion does not apply to timber. 2007 taxes online Base your depletion on your cost or other basis in the timber. 2007 taxes online Your cost does not include the cost of land or any amounts recoverable through depreciation. 2007 taxes online Depletion takes place when you cut standing timber. 2007 taxes online You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 2007 taxes online Figuring cost depletion. 2007 taxes online   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 2007 taxes online Timber units. 2007 taxes online   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 2007 taxes online You measure the timber using board feet, log scale, cords, or other units. 2007 taxes online If you later determine that you have more or less units of timber, you must adjust the original estimate. 2007 taxes online   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 2007 taxes online Depletion unit. 2007 taxes online   You figure your depletion unit each year by taking the following steps. 2007 taxes online Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 2007 taxes online Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 2007 taxes online Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 2007 taxes online Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. 2007 taxes online Divide the result of (2) by the result of (3). 2007 taxes online This is your depletion unit. 2007 taxes online Example. 2007 taxes online You bought a timber tract for $160,000 and the land was worth as much as the timber. 2007 taxes online Your basis for the timber is $80,000. 2007 taxes online Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). 2007 taxes online If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 2007 taxes online When to claim depletion. 2007 taxes online   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). 2007 taxes online Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. 2007 taxes online The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 2007 taxes online Example. 2007 taxes online The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. 2007 taxes online You would deduct $20,000 of the $40,000 depletion that year. 2007 taxes online You would add the remaining $20,000 depletion to your closing inventory of timber products. 2007 taxes online Electing to treat the cutting of timber as a sale or exchange. 2007 taxes online   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 2007 taxes online You must make the election on your income tax return for the tax year to which it applies. 2007 taxes online If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. 2007 taxes online You generally report the gain as long-term capital gain. 2007 taxes online The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. 2007 taxes online For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 2007 taxes online   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 2007 taxes online The prior election (and revocation) is disregarded for purposes of making a subsequent election. 2007 taxes online See Form T (Timber), Forest Activities Schedule, for more information. 2007 taxes online Form T. 2007 taxes online   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. 2007 taxes online Prev  Up  Next   Home   More Online Publications