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Can Tax Form 1040x Be Filed Online

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Can Tax Form 1040x Be Filed Online

Can tax form 1040x be filed online Publication 15-A - Main Content Table of Contents 1. Can tax form 1040x be filed online Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Can tax form 1040x be filed online Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Can tax form 1040x be filed online Employees of Exempt OrganizationsSocial security and Medicare taxes. Can tax form 1040x be filed online FUTA tax. Can tax form 1040x be filed online 4. Can tax form 1040x be filed online Religious Exemptions and Special Rules for MinistersForm W-2. Can tax form 1040x be filed online Self-employed. Can tax form 1040x be filed online Employees. Can tax form 1040x be filed online 5. Can tax form 1040x be filed online Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. Can tax form 1040x be filed online Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. Can tax form 1040x be filed online Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Can tax form 1040x be filed online Pensions and AnnuitiesFederal Income Tax Withholding 9. Can tax form 1040x be filed online Alternative Methods for Figuring WithholdingTerm of continuous employment. Can tax form 1040x be filed online Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. Can tax form 1040x be filed online Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Can tax form 1040x be filed online Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. Can tax form 1040x be filed online The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Can tax form 1040x be filed online This discussion explains these four categories. Can tax form 1040x be filed online A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. Can tax form 1040x be filed online If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. Can tax form 1040x be filed online However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Can tax form 1040x be filed online See Publication 15 (Circular E) for information on backup withholding. Can tax form 1040x be filed online Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. Can tax form 1040x be filed online However, whether such people are employees or independent contractors depends on the facts in each case. Can tax form 1040x be filed online The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Can tax form 1040x be filed online Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. Can tax form 1040x be filed online This is so even when you give the employee freedom of action. Can tax form 1040x be filed online What matters is that you have the right to control the details of how the services are performed. Can tax form 1040x be filed online For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Can tax form 1040x be filed online If you have an employer-employee relationship, it makes no difference how it is labeled. Can tax form 1040x be filed online The substance of the relationship, not the label, governs the worker's status. Can tax form 1040x be filed online It does not matter whether the individual is employed full time or part time. Can tax form 1040x be filed online For employment tax purposes, no distinction is made between classes of employees. Can tax form 1040x be filed online Superintendents, managers, and other supervisory personnel are all employees. Can tax form 1040x be filed online An officer of a corporation is generally an employee; however, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee. Can tax form 1040x be filed online A director of a corporation is not an employee with respect to services performed as a director. Can tax form 1040x be filed online You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Can tax form 1040x be filed online However, the wages of certain employees may be exempt from one or more of these taxes. Can tax form 1040x be filed online See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Can tax form 1040x be filed online Leased employees. Can tax form 1040x be filed online   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Can tax form 1040x be filed online For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. Can tax form 1040x be filed online   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. Can tax form 1040x be filed online The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. Can tax form 1040x be filed online The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. Can tax form 1040x be filed online For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Can tax form 1040x be filed online Additional information. Can tax form 1040x be filed online   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. Can tax form 1040x be filed online Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. Can tax form 1040x be filed online This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . Can tax form 1040x be filed online A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. Can tax form 1040x be filed online A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. Can tax form 1040x be filed online An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. Can tax form 1040x be filed online A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. Can tax form 1040x be filed online The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Can tax form 1040x be filed online The work performed for you must be the salesperson's principal business activity. Can tax form 1040x be filed online See Salesperson in section 2. Can tax form 1040x be filed online Social security and Medicare taxes. Can tax form 1040x be filed online   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Can tax form 1040x be filed online The service contract states or implies that substantially all the services are to be performed personally by them. Can tax form 1040x be filed online They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). Can tax form 1040x be filed online The services are performed on a continuing basis for the same payer. Can tax form 1040x be filed online Federal unemployment (FUTA) tax. Can tax form 1040x be filed online   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. Can tax form 1040x be filed online Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. Can tax form 1040x be filed online Income tax. Can tax form 1040x be filed online   Do not withhold federal income tax from the wages of statutory employees. Can tax form 1040x be filed online Reporting payments to statutory employees. Can tax form 1040x be filed online   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Can tax form 1040x be filed online Show your payments to the employee as “other compensation” in box 1. Can tax form 1040x be filed online Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. Can tax form 1040x be filed online The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Can tax form 1040x be filed online He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Can tax form 1040x be filed online A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. Can tax form 1040x be filed online H-2A agricultural workers. Can tax form 1040x be filed online   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Can tax form 1040x be filed online Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Can tax form 1040x be filed online Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. Can tax form 1040x be filed online Direct sellers. Can tax form 1040x be filed online   Direct sellers include persons falling within any of the following three groups. Can tax form 1040x be filed online Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. Can tax form 1040x be filed online Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. Can tax form 1040x be filed online Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). Can tax form 1040x be filed online   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. Can tax form 1040x be filed online Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Can tax form 1040x be filed online Licensed real estate agents. Can tax form 1040x be filed online   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Can tax form 1040x be filed online Companion sitters. Can tax form 1040x be filed online   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Can tax form 1040x be filed online A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Can tax form 1040x be filed online Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Can tax form 1040x be filed online Misclassification of Employees Consequences of treating an employee as an independent contractor. Can tax form 1040x be filed online   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. Can tax form 1040x be filed online See section 2 in Publication 15 (Circular E) for more information. Can tax form 1040x be filed online Relief provision. Can tax form 1040x be filed online   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Can tax form 1040x be filed online To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Can tax form 1040x be filed online You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Can tax form 1040x be filed online Technical service specialists. Can tax form 1040x be filed online   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. Can tax form 1040x be filed online A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Can tax form 1040x be filed online   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Can tax form 1040x be filed online The common-law rules control whether the specialist is treated as an employee or an independent contractor. Can tax form 1040x be filed online However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. Can tax form 1040x be filed online Test proctors and room supervisors. Can tax form 1040x be filed online   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. Can tax form 1040x be filed online Voluntary Classification Settlement Program (VCSP). Can tax form 1040x be filed online   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Can tax form 1040x be filed online To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Can tax form 1040x be filed online For more information, visit IRS. Can tax form 1040x be filed online gov and enter “VCSP” in the search box. Can tax form 1040x be filed online 2. Can tax form 1040x be filed online Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Can tax form 1040x be filed online An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Can tax form 1040x be filed online Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. Can tax form 1040x be filed online In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Can tax form 1040x be filed online Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Can tax form 1040x be filed online These facts are discussed next. Can tax form 1040x be filed online Behavioral control. Can tax form 1040x be filed online   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. Can tax form 1040x be filed online   An employee is generally subject to the business' instructions about when, where, and how to work. Can tax form 1040x be filed online All of the following are examples of types of instructions about how to do work. Can tax form 1040x be filed online When and where to do the work. Can tax form 1040x be filed online What tools or equipment to use. Can tax form 1040x be filed online What workers to hire or to assist with the work. Can tax form 1040x be filed online Where to purchase supplies and services. Can tax form 1040x be filed online What work must be performed by a specified  individual. Can tax form 1040x be filed online What order or sequence to follow. Can tax form 1040x be filed online   The amount of instruction needed varies among different jobs. Can tax form 1040x be filed online Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. Can tax form 1040x be filed online A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Can tax form 1040x be filed online The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Can tax form 1040x be filed online Training that the business gives to the worker. Can tax form 1040x be filed online   An employee may be trained to perform services in a particular manner. Can tax form 1040x be filed online Independent contractors ordinarily use their own methods. Can tax form 1040x be filed online Financial control. Can tax form 1040x be filed online   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Can tax form 1040x be filed online   Independent contractors are more likely to have unreimbursed expenses than are employees. Can tax form 1040x be filed online Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Can tax form 1040x be filed online However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Can tax form 1040x be filed online The extent of the worker's investment. Can tax form 1040x be filed online   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Can tax form 1040x be filed online However, a significant investment is not necessary for independent contractor status. Can tax form 1040x be filed online The extent to which the worker makes his or her services available to the relevant market. Can tax form 1040x be filed online   An independent contractor is generally free to seek out business opportunities. Can tax form 1040x be filed online Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Can tax form 1040x be filed online How the business pays the worker. Can tax form 1040x be filed online   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Can tax form 1040x be filed online This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Can tax form 1040x be filed online An independent contractor is often paid a flat fee or on a time and materials basis for the job. Can tax form 1040x be filed online However, it is common in some professions, such as law, to pay independent contractors hourly. Can tax form 1040x be filed online The extent to which the worker can realize a profit or loss. Can tax form 1040x be filed online   An independent contractor can make a profit or loss. Can tax form 1040x be filed online Type of relationship. Can tax form 1040x be filed online   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Can tax form 1040x be filed online Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Can tax form 1040x be filed online The permanency of the relationship. Can tax form 1040x be filed online If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. Can tax form 1040x be filed online The extent to which services performed by the worker are a key aspect of the regular business of the company. Can tax form 1040x be filed online If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. Can tax form 1040x be filed online For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. Can tax form 1040x be filed online This would indicate an employer-employee relationship. Can tax form 1040x be filed online IRS help. Can tax form 1040x be filed online   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Can tax form 1040x be filed online Industry Examples The following examples may help you properly classify your workers. Can tax form 1040x be filed online Building and Construction Industry Example 1. Can tax form 1040x be filed online Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Can tax form 1040x be filed online She did not advance funds to help him carry on the work. Can tax form 1040x be filed online She makes direct payments to the suppliers for all necessary materials. Can tax form 1040x be filed online She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Can tax form 1040x be filed online She pays them an hourly rate and exercises almost constant supervision over the work. Can tax form 1040x be filed online Jerry is not free to transfer his assistants to other jobs. Can tax form 1040x be filed online He may not work on other jobs while working for Wilma. Can tax form 1040x be filed online He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Can tax form 1040x be filed online He and his assistants perform personal services for hourly wages. Can tax form 1040x be filed online Jerry Jones and his assistants are employees of Wilma White. Can tax form 1040x be filed online Example 2. Can tax form 1040x be filed online Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Can tax form 1040x be filed online He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Can tax form 1040x be filed online The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Can tax form 1040x be filed online He does not have a place of business or hold himself out to perform similar services for others. Can tax form 1040x be filed online Either party can end the services at any time. Can tax form 1040x be filed online Milton Manning is an employee of the corporation. Can tax form 1040x be filed online Example 3. Can tax form 1040x be filed online Wallace Black agreed with the Sawdust Co. Can tax form 1040x be filed online to supply the construction labor for a group of houses. Can tax form 1040x be filed online The company agreed to pay all construction costs. Can tax form 1040x be filed online However, he supplies all the tools and equipment. Can tax form 1040x be filed online He performs personal services as a carpenter and mechanic for an hourly wage. Can tax form 1040x be filed online He also acts as superintendent and foreman and engages other individuals to assist him. Can tax form 1040x be filed online The company has the right to select, approve, or discharge any helper. Can tax form 1040x be filed online A company representative makes frequent inspections of the construction site. Can tax form 1040x be filed online When a house is finished, Wallace is paid a certain percentage of its costs. Can tax form 1040x be filed online He is not responsible for faults, defects of construction, or wasteful operation. Can tax form 1040x be filed online At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Can tax form 1040x be filed online The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Can tax form 1040x be filed online Wallace Black and his assistants are employees of the Sawdust Co. Can tax form 1040x be filed online Example 4. Can tax form 1040x be filed online Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Can tax form 1040x be filed online A signed contract established a flat amount for the services rendered by Bill Plum. Can tax form 1040x be filed online Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Can tax form 1040x be filed online He hires his own roofers who are treated as employees for federal employment tax purposes. Can tax form 1040x be filed online If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Can tax form 1040x be filed online Bill Plum, doing business as Plum Roofing, is an independent contractor. Can tax form 1040x be filed online Example 5. Can tax form 1040x be filed online Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Can tax form 1040x be filed online She is to receive $1,280 every 2 weeks for the next 10 weeks. Can tax form 1040x be filed online This is not considered payment by the hour. Can tax form 1040x be filed online Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Can tax form 1040x be filed online She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Can tax form 1040x be filed online Vera is an independent contractor. Can tax form 1040x be filed online Trucking Industry Example. Can tax form 1040x be filed online Rose Trucking contracts to deliver material for Forest, Inc. Can tax form 1040x be filed online , at $140 per ton. Can tax form 1040x be filed online Rose Trucking is not paid for any articles that are not delivered. Can tax form 1040x be filed online At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Can tax form 1040x be filed online All operating expenses, including insurance coverage, are paid by Jan Rose. Can tax form 1040x be filed online All equipment is owned or rented by Jan and she is responsible for all maintenance. Can tax form 1040x be filed online None of the drivers are provided by Forest, Inc. Can tax form 1040x be filed online Jan Rose, operating as Rose Trucking, is an independent contractor. Can tax form 1040x be filed online Computer Industry Example. Can tax form 1040x be filed online Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Can tax form 1040x be filed online , downsizes. Can tax form 1040x be filed online Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Can tax form 1040x be filed online It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Can tax form 1040x be filed online Megabyte provides Steve with no instructions beyond the specifications for the product itself. Can tax form 1040x be filed online Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Can tax form 1040x be filed online Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Can tax form 1040x be filed online Steve works at home and is not expected or allowed to attend meetings of the software development group. Can tax form 1040x be filed online Steve is an independent contractor. Can tax form 1040x be filed online Automobile Industry Example 1. Can tax form 1040x be filed online Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Can tax form 1040x be filed online She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Can tax form 1040x be filed online She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Can tax form 1040x be filed online Lists of prospective customers belong to the dealer. Can tax form 1040x be filed online She is required to develop leads and report results to the sales manager. Can tax form 1040x be filed online Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Can tax form 1040x be filed online She is paid a commission and is eligible for prizes and bonuses offered by Bob. Can tax form 1040x be filed online Bob also pays the cost of health insurance and group-term life insurance for Donna. Can tax form 1040x be filed online Donna is an employee of Bob Blue. Can tax form 1040x be filed online Example 2. Can tax form 1040x be filed online Sam Sparks performs auto repair services in the repair department of an auto sales company. Can tax form 1040x be filed online He works regular hours and is paid on a percentage basis. Can tax form 1040x be filed online He has no investment in the repair department. Can tax form 1040x be filed online The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. Can tax form 1040x be filed online Sam is an employee of the sales company. Can tax form 1040x be filed online Example 3. Can tax form 1040x be filed online An auto sales agency furnishes space for Helen Bach to perform auto repair services. Can tax form 1040x be filed online She provides her own tools, equipment, and supplies. Can tax form 1040x be filed online She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Can tax form 1040x be filed online She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. Can tax form 1040x be filed online Helen is an independent contractor and the helpers are her employees. Can tax form 1040x be filed online Attorney Example. Can tax form 1040x be filed online Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Can tax form 1040x be filed online Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Can tax form 1040x be filed online Donna has a part-time receptionist who also does the bookkeeping. Can tax form 1040x be filed online She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Can tax form 1040x be filed online For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Can tax form 1040x be filed online Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Can tax form 1040x be filed online The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. Can tax form 1040x be filed online Donna is an independent contractor. Can tax form 1040x be filed online Taxicab Driver Example. Can tax form 1040x be filed online Tom Spruce rents a cab from Taft Cab Co. Can tax form 1040x be filed online for $150 per day. Can tax form 1040x be filed online He pays the costs of maintaining and operating the cab. Can tax form 1040x be filed online Tom Spruce keeps all fares that he receives from customers. Can tax form 1040x be filed online Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Can tax form 1040x be filed online Tom Spruce is an independent contractor. Can tax form 1040x be filed online Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Can tax form 1040x be filed online If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). Can tax form 1040x be filed online However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. Can tax form 1040x be filed online To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. Can tax form 1040x be filed online A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. Can tax form 1040x be filed online 3. Can tax form 1040x be filed online Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Can tax form 1040x be filed online Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Can tax form 1040x be filed online However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Can tax form 1040x be filed online Section 501(c)(3) organizations. Can tax form 1040x be filed online   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Can tax form 1040x be filed online These organizations are usually corporations and are exempt from federal income tax under section 501(a). Can tax form 1040x be filed online Social security and Medicare taxes. Can tax form 1040x be filed online   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. Can tax form 1040x be filed online The organization pays an employee less than $100 in a calendar year. Can tax form 1040x be filed online The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. Can tax form 1040x be filed online The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. Can tax form 1040x be filed online   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. Can tax form 1040x be filed online 28 or more in a year. Can tax form 1040x be filed online However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Can tax form 1040x be filed online See Members of recognized religious sects opposed to insurance in section 4. Can tax form 1040x be filed online FUTA tax. Can tax form 1040x be filed online   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. Can tax form 1040x be filed online This exemption cannot be waived. Can tax form 1040x be filed online Do not file Form 940 to report wages paid by these organizations or pay the tax. Can tax form 1040x be filed online Note. Can tax form 1040x be filed online An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. Can tax form 1040x be filed online Other than section 501(c)(3) organizations. Can tax form 1040x be filed online   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. Can tax form 1040x be filed online However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Can tax form 1040x be filed online Two special rules for social security, Medicare, and FUTA taxes apply. Can tax form 1040x be filed online If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. Can tax form 1040x be filed online If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. Can tax form 1040x be filed online The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Can tax form 1040x be filed online 4. Can tax form 1040x be filed online Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Can tax form 1040x be filed online An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Can tax form 1040x be filed online For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Can tax form 1040x be filed online Ministers. Can tax form 1040x be filed online   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Can tax form 1040x be filed online They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. Can tax form 1040x be filed online   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Can tax form 1040x be filed online The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. Can tax form 1040x be filed online Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. Can tax form 1040x be filed online However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. Can tax form 1040x be filed online You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. Can tax form 1040x be filed online For more information, see Publication 517. Can tax form 1040x be filed online Form W-2. Can tax form 1040x be filed online   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Can tax form 1040x be filed online Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Can tax form 1040x be filed online Do not include a parsonage allowance (excludable housing allowance) in this amount. Can tax form 1040x be filed online You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. Can tax form 1040x be filed online Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. Can tax form 1040x be filed online If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. Can tax form 1040x be filed online For more information on ministers, see Publication 517. Can tax form 1040x be filed online Exemptions for ministers and others. Can tax form 1040x be filed online   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. Can tax form 1040x be filed online The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. Can tax form 1040x be filed online The exemption applies only to qualified services performed for the religious organization. Can tax form 1040x be filed online See Revenue Procedure 91-20, 1991-1 C. Can tax form 1040x be filed online B. Can tax form 1040x be filed online 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Can tax form 1040x be filed online   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. Can tax form 1040x be filed online See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Can tax form 1040x be filed online Members of recognized religious sects opposed to insurance. Can tax form 1040x be filed online   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. Can tax form 1040x be filed online To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). Can tax form 1040x be filed online If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Can tax form 1040x be filed online Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Can tax form 1040x be filed online In addition, your religious sect (or division) must have existed since December 31, 1950. Can tax form 1040x be filed online Self-employed. Can tax form 1040x be filed online   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. Can tax form 1040x be filed online Employees. Can tax form 1040x be filed online   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. Can tax form 1040x be filed online This applies to partnerships only if each partner is a member of the sect. Can tax form 1040x be filed online This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. Can tax form 1040x be filed online To get the exemption, the employee must file Form 4029. Can tax form 1040x be filed online   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. Can tax form 1040x be filed online 5. Can tax form 1040x be filed online Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Can tax form 1040x be filed online Publication 15-B discusses fringe benefits. Can tax form 1040x be filed online The following topics supplement those discussions. Can tax form 1040x be filed online Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. Can tax form 1040x be filed online Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Can tax form 1040x be filed online If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. Can tax form 1040x be filed online For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. Can tax form 1040x be filed online If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. Can tax form 1040x be filed online See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Can tax form 1040x be filed online These rules generally apply to temporary work assignments both inside and outside the U. Can tax form 1040x be filed online S. Can tax form 1040x be filed online Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. Can tax form 1040x be filed online To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. Can tax form 1040x be filed online Excludable employee achievement awards also are not subject to FUTA tax. Can tax form 1040x be filed online Limits. Can tax form 1040x be filed online   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Can tax form 1040x be filed online A higher limit of $1,600 applies to qualified plan awards. Can tax form 1040x be filed online Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Can tax form 1040x be filed online An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. Can tax form 1040x be filed online   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. Can tax form 1040x be filed online The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. Can tax form 1040x be filed online Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. Can tax form 1040x be filed online A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. Can tax form 1040x be filed online The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. Can tax form 1040x be filed online These amounts are reportable on Form W-2. Can tax form 1040x be filed online However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. Can tax form 1040x be filed online Any amounts that you pay for room and board are not excludable from the recipient's gross income. Can tax form 1040x be filed online A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Can tax form 1040x be filed online For more information, see Publication 970, Tax Benefits for Education. Can tax form 1040x be filed online Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. Can tax form 1040x be filed online However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. Can tax form 1040x be filed online However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. Can tax form 1040x be filed online Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. Can tax form 1040x be filed online Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. Can tax form 1040x be filed online Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Can tax form 1040x be filed online If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. Can tax form 1040x be filed online These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. Can tax form 1040x be filed online Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. Can tax form 1040x be filed online See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. Can tax form 1040x be filed online Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Can tax form 1040x be filed online Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Can tax form 1040x be filed online You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. Can tax form 1040x be filed online It does not matter whether the separation is temporary or permanent. Can tax form 1040x be filed online There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. Can tax form 1040x be filed online To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Can tax form 1040x be filed online Benefits are paid only to unemployed former employees who are laid off by the employer. Can tax form 1040x be filed online Eligibility for benefits depends on meeting prescribed conditions after termination. Can tax form 1040x be filed online The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. Can tax form 1040x be filed online The right to benefits does not accrue until a prescribed period after termination. Can tax form 1040x be filed online Benefits are not attributable to the performance of particular services. Can tax form 1040x be filed online No employee has any right to the benefits until qualified and eligible to receive benefits. Can tax form 1040x be filed online Benefits may not be paid in a lump sum. Can tax form 1040x be filed online Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Can tax form 1040x be filed online Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Can tax form 1040x be filed online Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. Can tax form 1040x be filed online Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Can tax form 1040x be filed online See Regulations section 1. Can tax form 1040x be filed online 280G-1 for more information. Can tax form 1040x be filed online No deduction is allowed to the corporation for any excess parachute payment. Can tax form 1040x be filed online To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Can tax form 1040x be filed online A parachute payment for purposes of section 280G is any payment that meets all of the following. Can tax form 1040x be filed online The payment is in the nature of compensation. Can tax form 1040x be filed online The payment is to, or for the benefit of, a disqualified individual. Can tax form 1040x be filed online A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. Can tax form 1040x be filed online The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. Can tax form 1040x be filed online The payment has an aggregate present value of at least three times the individual's base amount. Can tax form 1040x be filed online The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Can tax form 1040x be filed online An excess parachute payment amount is the excess of any parachute payment over the base amount. Can tax form 1040x be filed online For more information, see Regulations section 1. Can tax form 1040x be filed online 280G-1. Can tax form 1040x be filed online The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Can tax form 1040x be filed online If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online An officer of a corporation receives a golden parachute payment of $400,000. Can tax form 1040x be filed online This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Can tax form 1040x be filed online The excess parachute payment is $300,000 ($400,000 minus $100,000). Can tax form 1040x be filed online The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Can tax form 1040x be filed online Reporting golden parachute payments. Can tax form 1040x be filed online   Golden parachute payments to employees must be reported on Form W-2. Can tax form 1040x be filed online See the General Instructions for Forms W-2 and W-3 for details. Can tax form 1040x be filed online For nonemployee reporting of these payments, see Box 7. Can tax form 1040x be filed online Nonemployee Compensation in the Instructions for Form 1099-MISC. Can tax form 1040x be filed online Exempt payments. Can tax form 1040x be filed online   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Can tax form 1040x be filed online See section 280G(b)(5) and (6) for more information. Can tax form 1040x be filed online Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. Can tax form 1040x be filed online This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Can tax form 1040x be filed online This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Can tax form 1040x be filed online Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Can tax form 1040x be filed online The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Can tax form 1040x be filed online You can get these rates by calling 1-800-829-4933 or by visiting IRS. Can tax form 1040x be filed online gov. Can tax form 1040x be filed online For more information, see section 7872 and its related regulations. Can tax form 1040x be filed online Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. Can tax form 1040x be filed online These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Can tax form 1040x be filed online Do not include these amounts in the income of the transferors. Can tax form 1040x be filed online These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Can tax form 1040x be filed online Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. Can tax form 1040x be filed online Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. Can tax form 1040x be filed online Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Can tax form 1040x be filed online Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. Can tax form 1040x be filed online Specific rules for reporting are provided in the instructions to the forms. Can tax form 1040x be filed online The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Can tax form 1040x be filed online The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. Can tax form 1040x be filed online For more information about nonqualified deferred compensation plans, see Regulations sections 1. Can tax form 1040x be filed online 409A-1 through 1. Can tax form 1040x be filed online 409A-6. Can tax form 1040x be filed online Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Can tax form 1040x be filed online Notice 2008-113, 2008-51 I. Can tax form 1040x be filed online R. Can tax form 1040x be filed online B. Can tax form 1040x be filed online 1305, is available at www. Can tax form 1040x be filed online irs. Can tax form 1040x be filed online gov/irb/2008-51_IRB/ar12. Can tax form 1040x be filed online html. Can tax form 1040x be filed online Also see Notice 2010-6, 2010-3 I. Can tax form 1040x be filed online R. Can tax form 1040x be filed online B. Can tax form 1040x be filed online 275, available at www. Can tax form 1040x be filed online irs. Can tax form 1040x be filed online gov/irb/2010-03_IRB/ar08. Can tax form 1040x be filed online html and Notice 2010-80, 2010-51 I. Can tax form 1040x be filed online R. Can tax form 1040x be filed online B. Can tax form 1040x be filed online 853, available at www. Can tax form 1040x be filed online irs. Can tax form 1040x be filed online gov/irb/2010-51_IRB/ar08. Can tax form 1040x be filed online html. Can tax form 1040x be filed online Social security, Medicare, and FUTA taxes. Can tax form 1040x be filed online   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. Can tax form 1040x be filed online   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. Can tax form 1040x be filed online If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. Can tax form 1040x be filed online You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Can tax form 1040x be filed online If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. Can tax form 1040x be filed online For more information, see Regulations sections 31. Can tax form 1040x be filed online 3121(v)(2)-1 and 31. Can tax form 1040x be filed online 3306(r)(2)-1. Can tax form 1040x be filed online Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. Can tax form 1040x be filed online However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. Can tax form 1040x be filed online See Regulations section 31. Can tax form 1040x be filed online 3121(a)(5)-2 for the definition of a salary reduction agreement. Can tax form 1040x be filed online Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. Can tax form 1040x be filed online These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Can tax form 1040x be filed online However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Can tax form 1040x be filed online See Publication 560 for more information about SEPs. Can tax form 1040x be filed online Salary reduction simplified employee pensions (SARSEP) repealed. Can tax form 1040x be filed online   You may not establish a SARSEP after 1996. Can tax form 1040x be filed online However, SARSEPs established before January 1, 1997, may continue to receive contributions. Can tax form 1040x be filed online SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. Can tax form 1040x be filed online An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Can tax form 1040x be filed online However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Can tax form 1040x be filed online For more information about SIMPLE retirement plans, see Publication 560. Can tax form 1040x be filed online 6. Can tax form 1040x be filed online Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Can tax form 1040x be filed online Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Can tax form 1040x be filed online gov in December 2014. Can tax form 1040x be filed online Special rules apply to the reporting of sick pay payments to employees. Can tax form 1040x be filed online How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Can tax form 1040x be filed online Sick pay is usually subject to social security, Medicare, and FUTA taxes. Can tax form 1040x be filed online For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Can tax form 1040x be filed online Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Can tax form 1040x be filed online Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. Can tax form 1040x be filed online It may be paid by either the employer or a third party, such as an insurance company. Can tax form 1040x be filed online Sick pay includes both short- and long-term benefits. Can tax form 1040x be filed online It is often expressed as a percentage of the employee's regular wages. Can tax form 1040x be filed online Payments That Are Not Sick Pay Sick pay does not include the following payments. Can tax form 1040x be filed online Disability retirement payments. Can tax form 1040x be filed online Disability retirement payments are not sick pay and are not discussed in this section. Can tax form 1040x be filed online Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Can tax form 1040x be filed online See section 8. Can tax form 1040x be filed online Workers' compensation. Can tax form 1040x be filed online Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. Can tax form 1040x be filed online But see Payments in the nature of workers' compensation—public employees next. Can tax form 1040x be filed online Payments in the nature of workers' compensation—public employees. Can tax form 1040x be filed online State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. Can tax form 1040x be filed online If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. Can tax form 1040x be filed online Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Can tax form 1040x be filed online For more information, see Regulations section 31. Can tax form 1040x be filed online 3121(a)(2)-1. Can tax form 1040x be filed online Medical expense payments. Can tax form 1040x be filed online Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. Can tax form 1040x be filed online Payments unrelated to absence from work. Can tax form 1040x be filed online Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Can tax form 1040x be filed online These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online Donald was injured in a car accident and lost an eye. Can tax form 1040x be filed online Under a policy paid for by Donald's employer, Delta Insurance Co. Can tax form 1040x be filed online paid Donald $20,000 as compensation for the loss of his eye. Can tax form 1040x be filed online Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. Can tax form 1040x be filed online Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. Can tax form 1040x be filed online This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. Can tax form 1040x be filed online You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. Can tax form 1040x be filed online Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. Can tax form 1040x be filed online Definition of employer. Can tax form 1040x be filed online   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. Can tax form 1040x be filed online Note. Can tax form 1040x be filed online Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). Can tax form 1040x be filed online Third-Party Payers of Sick Pay Employer's agent. Can tax form 1040x be filed online   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. Can tax form 1040x be filed online A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Can tax form 1040x be filed online For example, if a third party provides administrative services only, the third party is your agent. Can tax form 1040x be filed online If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. Can tax form 1040x be filed online Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Can tax form 1040x be filed online   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. Can tax form 1040x be filed online This responsibility remains with you. Can tax form 1040x be filed online However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Can tax form 1040x be filed online In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. Can tax form 1040x be filed online Third party not employer's agent. Can tax form 1040x be filed online   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. Can tax form 1040x be filed online   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. Can tax form 1040x be filed online This liability is transferred if the third party takes the following steps. Can tax form 1040x be filed online Withholds the employee social security and Medicare taxes from the sick pay payments. Can tax form 1040x be filed online Makes timely deposits of the employee social security and Medicare taxes. Can tax form 1040x be filed online Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Can tax form 1040x be filed online The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. Can tax form 1040x be filed online For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. Can tax form 1040x be filed online The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. Can tax form 1040x be filed online For multi-employer plans, see the special rule discussed next. Can tax form 1040x be filed online Multi-employer plan timing rule. Can tax form 1040x be filed online   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. Can tax form 1040x be filed online If the third-party insurer making the payments complies wi
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Can tax form 1040x be filed online 2. Can tax form 1040x be filed online   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Can tax form 1040x be filed online You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Can tax form 1040x be filed online Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Can tax form 1040x be filed online You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Can tax form 1040x be filed online You can deduct depreciation only on the part of your property used for rental purposes. Can tax form 1040x be filed online Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Can tax form 1040x be filed online You may have to use Form 4562 to figure and report your depreciation. Can tax form 1040x be filed online See Which Forms To Use in chapter 3. Can tax form 1040x be filed online Also see Publication 946. Can tax form 1040x be filed online Section 179 deduction. Can tax form 1040x be filed online   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Can tax form 1040x be filed online This deduction is not allowed for property used in connection with residential rental property. Can tax form 1040x be filed online See chapter 2 of Publication 946. Can tax form 1040x be filed online Alternative minimum tax (AMT). Can tax form 1040x be filed online   If you use accelerated depreciation, you may be subject to the AMT. Can tax form 1040x be filed online Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Can tax form 1040x be filed online   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Can tax form 1040x be filed online However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Can tax form 1040x be filed online   To find out if you are subject to the AMT, see the Instructions for Form 6251. Can tax form 1040x be filed online The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Can tax form 1040x be filed online What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Can tax form 1040x be filed online You own the property. Can tax form 1040x be filed online You use the property in your business or income-producing activity (such as rental property). Can tax form 1040x be filed online The property has a determinable useful life. Can tax form 1040x be filed online The property is expected to last more than one year. Can tax form 1040x be filed online Property you own. Can tax form 1040x be filed online   To claim depreciation, you usually must be the owner of the property. Can tax form 1040x be filed online You are considered as owning property even if it is subject to a debt. Can tax form 1040x be filed online Rented property. Can tax form 1040x be filed online   Generally, if you pay rent for property, you cannot depreciate that property. Can tax form 1040x be filed online Usually, only the owner can depreciate it. Can tax form 1040x be filed online However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Can tax form 1040x be filed online See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Can tax form 1040x be filed online Cooperative apartments. Can tax form 1040x be filed online   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Can tax form 1040x be filed online See chapter 4, Special Situations. Can tax form 1040x be filed online Property having a determinable useful life. Can tax form 1040x be filed online   To be depreciable, your property must have a determinable useful life. Can tax form 1040x be filed online This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Can tax form 1040x be filed online What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Can tax form 1040x be filed online This includes land and certain excepted property. Can tax form 1040x be filed online Land. Can tax form 1040x be filed online   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Can tax form 1040x be filed online But if it does, the loss is accounted for upon disposition. Can tax form 1040x be filed online The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Can tax form 1040x be filed online   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Can tax form 1040x be filed online These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Can tax form 1040x be filed online Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Can tax form 1040x be filed online If you replace the house, you would have to destroy the bushes and trees right next to it. Can tax form 1040x be filed online These bushes and trees are closely associated with the house, so they have a determinable useful life. Can tax form 1040x be filed online Therefore, you can depreciate them. Can tax form 1040x be filed online Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Can tax form 1040x be filed online Excepted property. Can tax form 1040x be filed online   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Can tax form 1040x be filed online Property placed in service and disposed of (or taken out of business use) in the same year. Can tax form 1040x be filed online Equipment used to build capital improvements. Can tax form 1040x be filed online You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Can tax form 1040x be filed online For more information, see chapter 1 of Publication 946. Can tax form 1040x be filed online When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Can tax form 1040x be filed online You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Can tax form 1040x be filed online Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Can tax form 1040x be filed online Even if you are not using the property, it is in service when it is ready and available for its specific use. Can tax form 1040x be filed online Example 1. Can tax form 1040x be filed online On November 22 of last year, you purchased a dishwasher for your rental property. Can tax form 1040x be filed online The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Can tax form 1040x be filed online Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Can tax form 1040x be filed online If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Can tax form 1040x be filed online Example 2. Can tax form 1040x be filed online On April 6, you purchased a house to use as residential rental property. Can tax form 1040x be filed online You made extensive repairs to the house and had it ready for rent on July 5. Can tax form 1040x be filed online You began to advertise the house for rent in July and actually rented it beginning September 1. Can tax form 1040x be filed online The house is considered placed in service in July when it was ready and available for rent. Can tax form 1040x be filed online You can begin to depreciate the house in July. Can tax form 1040x be filed online Example 3. Can tax form 1040x be filed online You moved from your home in July. Can tax form 1040x be filed online During August and September you made several repairs to the house. Can tax form 1040x be filed online On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Can tax form 1040x be filed online The property is considered placed in service on October 1, the date when it was available for rent. Can tax form 1040x be filed online Conversion to business use. Can tax form 1040x be filed online   If you place property in service in a personal activity, you cannot claim depreciation. Can tax form 1040x be filed online However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Can tax form 1040x be filed online You place the property in service for business or income-producing use on the date of the change. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online You bought a house and used it as your personal home several years before you converted it to rental property. Can tax form 1040x be filed online Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Can tax form 1040x be filed online You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Can tax form 1040x be filed online Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Can tax form 1040x be filed online For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Can tax form 1040x be filed online Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Can tax form 1040x be filed online For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Can tax form 1040x be filed online See Basis of Depreciable Property , later. Can tax form 1040x be filed online Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Can tax form 1040x be filed online You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Can tax form 1040x be filed online You sell or exchange the property. Can tax form 1040x be filed online You convert the property to personal use. Can tax form 1040x be filed online You abandon the property. Can tax form 1040x be filed online The property is destroyed. Can tax form 1040x be filed online Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Can tax form 1040x be filed online If you placed rental property in service before 1987, you are using one of the following methods. Can tax form 1040x be filed online ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Can tax form 1040x be filed online Straight line or declining balance method over the useful life of property placed in service before 1981. Can tax form 1040x be filed online See MACRS Depreciation , later, for more information. Can tax form 1040x be filed online Rental property placed in service before 2013. Can tax form 1040x be filed online   Continue to use the same method of figuring depreciation that you used in the past. Can tax form 1040x be filed online Use of real property changed. Can tax form 1040x be filed online   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Can tax form 1040x be filed online This includes your residence that you changed to rental use. Can tax form 1040x be filed online See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Can tax form 1040x be filed online Improvements made after 1986. Can tax form 1040x be filed online   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Can tax form 1040x be filed online As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Can tax form 1040x be filed online For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Can tax form 1040x be filed online This publication discusses MACRS depreciation only. Can tax form 1040x be filed online If you need information about depreciating property placed in service before 1987, see Publication 534. Can tax form 1040x be filed online Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Can tax form 1040x be filed online This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Can tax form 1040x be filed online If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Can tax form 1040x be filed online Basis and adjusted basis are explained in the following discussions. Can tax form 1040x be filed online If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Can tax form 1040x be filed online See Basis of Property Changed to Rental Use in chapter 4. Can tax form 1040x be filed online Cost Basis The basis of property you buy is usually its cost. Can tax form 1040x be filed online The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Can tax form 1040x be filed online Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Can tax form 1040x be filed online Exception. Can tax form 1040x be filed online   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Can tax form 1040x be filed online Such taxes were deductible before 1987 and after 2003. Can tax form 1040x be filed online Loans with low or no interest. Can tax form 1040x be filed online   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Can tax form 1040x be filed online See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Can tax form 1040x be filed online Real property. Can tax form 1040x be filed online   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Can tax form 1040x be filed online Real estate taxes. Can tax form 1040x be filed online   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Can tax form 1040x be filed online You cannot deduct them as taxes paid. Can tax form 1040x be filed online   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Can tax form 1040x be filed online Do not include that amount in your basis in the property. Can tax form 1040x be filed online Settlement fees and other costs. Can tax form 1040x be filed online   The following settlement fees and closing costs for buying the property are part of your basis in the property. Can tax form 1040x be filed online Abstract fees. Can tax form 1040x be filed online Charges for installing utility services. Can tax form 1040x be filed online Legal fees. Can tax form 1040x be filed online Recording fees. Can tax form 1040x be filed online Surveys. Can tax form 1040x be filed online Transfer taxes. Can tax form 1040x be filed online Title insurance. Can tax form 1040x be filed online Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Can tax form 1040x be filed online   The following are settlement fees and closing costs you cannot include in your basis in the property. Can tax form 1040x be filed online Fire insurance premiums. Can tax form 1040x be filed online Rent or other charges relating to occupancy of the property before closing. Can tax form 1040x be filed online Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Can tax form 1040x be filed online   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Can tax form 1040x be filed online Assumption of a mortgage. Can tax form 1040x be filed online   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Can tax form 1040x be filed online Your basis is $300,000. Can tax form 1040x be filed online Separating cost of land and buildings. Can tax form 1040x be filed online   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Can tax form 1040x be filed online The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Can tax form 1040x be filed online   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online You buy a house and land for $200,000. Can tax form 1040x be filed online The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Can tax form 1040x be filed online The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Can tax form 1040x be filed online You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Can tax form 1040x be filed online Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Can tax form 1040x be filed online Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Can tax form 1040x be filed online If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Can tax form 1040x be filed online Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Can tax form 1040x be filed online The result of these adjustments to the basis is the adjusted basis. Can tax form 1040x be filed online Increases to basis. Can tax form 1040x be filed online   You must increase the basis of any property by the cost of all items properly added to a capital account. Can tax form 1040x be filed online These include the following. Can tax form 1040x be filed online The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Can tax form 1040x be filed online Amounts spent after a casualty to restore the damaged property. Can tax form 1040x be filed online The cost of extending utility service lines to the property. Can tax form 1040x be filed online Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Can tax form 1040x be filed online Additions or improvements. Can tax form 1040x be filed online   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Can tax form 1040x be filed online This includes all direct costs, such as material and labor, but does not include your own labor. Can tax form 1040x be filed online It also includes all expenses related to the addition or improvement. Can tax form 1040x be filed online   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Can tax form 1040x be filed online Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Can tax form 1040x be filed online   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Can tax form 1040x be filed online For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Can tax form 1040x be filed online    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Can tax form 1040x be filed online However, see What Rental Property Cannot Be Depreciated, earlier. Can tax form 1040x be filed online Assessments for local improvements. Can tax form 1040x be filed online   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Can tax form 1040x be filed online For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Can tax form 1040x be filed online Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Can tax form 1040x be filed online You cannot deduct these items as taxes or depreciate them. Can tax form 1040x be filed online    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Can tax form 1040x be filed online Do not add them to your basis in the property. Can tax form 1040x be filed online Deducting vs. Can tax form 1040x be filed online capitalizing costs. Can tax form 1040x be filed online   Do not add to your basis costs you can deduct as current expenses. Can tax form 1040x be filed online However, there are certain costs you can choose either to deduct or to capitalize. Can tax form 1040x be filed online If you capitalize these costs, include them in your basis. Can tax form 1040x be filed online If you deduct them, do not include them in your basis. Can tax form 1040x be filed online   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Can tax form 1040x be filed online   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Can tax form 1040x be filed online Decreases to basis. Can tax form 1040x be filed online   You must decrease the basis of your property by any items that represent a return of your cost. Can tax form 1040x be filed online These include the following. Can tax form 1040x be filed online Insurance or other payment you receive as the result of a casualty or theft loss. Can tax form 1040x be filed online Casualty loss not covered by insurance for which you took a deduction. Can tax form 1040x be filed online Amount(s) you receive for granting an easement. Can tax form 1040x be filed online Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Can tax form 1040x be filed online Exclusion from income of subsidies for energy conservation measures. Can tax form 1040x be filed online Special depreciation allowance claimed on qualified property. Can tax form 1040x be filed online Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Can tax form 1040x be filed online If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Can tax form 1040x be filed online   If your rental property was previously used as your main home, you must also decrease the basis by the following. Can tax form 1040x be filed online Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Can tax form 1040x be filed online District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Can tax form 1040x be filed online Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Can tax form 1040x be filed online Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Can tax form 1040x be filed online This allowance is figured before you figure your regular depreciation deduction. Can tax form 1040x be filed online See Publication 946, chapter 3, for details. Can tax form 1040x be filed online Also see the Instructions for Form 4562, Line 14. Can tax form 1040x be filed online If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Can tax form 1040x be filed online The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Can tax form 1040x be filed online MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Can tax form 1040x be filed online This section explains how to determine which MACRS depreciation system applies to your property. Can tax form 1040x be filed online It also discusses other information you need to know before you can figure depreciation under MACRS. Can tax form 1040x be filed online This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Can tax form 1040x be filed online Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Can tax form 1040x be filed online You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Can tax form 1040x be filed online Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Can tax form 1040x be filed online In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Can tax form 1040x be filed online However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Can tax form 1040x be filed online For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Can tax form 1040x be filed online Electing ADS If you choose, you can use the ADS method for most property. Can tax form 1040x be filed online Under ADS, you use the straight line method of depreciation. Can tax form 1040x be filed online The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Can tax form 1040x be filed online However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Can tax form 1040x be filed online If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Can tax form 1040x be filed online Once you make this election, you can never revoke it. Can tax form 1040x be filed online For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Can tax form 1040x be filed online Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Can tax form 1040x be filed online The property class generally determines the depreciation method, recovery period, and convention. Can tax form 1040x be filed online The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Can tax form 1040x be filed online Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Can tax form 1040x be filed online 5-year property. Can tax form 1040x be filed online This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Can tax form 1040x be filed online ), automobiles, and light trucks. Can tax form 1040x be filed online This class also includes appliances, carpeting, furniture, etc. Can tax form 1040x be filed online , used in a residential rental real estate activity. Can tax form 1040x be filed online Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Can tax form 1040x be filed online See chapter 5 of Publication 946. Can tax form 1040x be filed online 7-year property. Can tax form 1040x be filed online This class includes office furniture and equipment (desks, file cabinets, etc. Can tax form 1040x be filed online ). Can tax form 1040x be filed online This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Can tax form 1040x be filed online 15-year property. Can tax form 1040x be filed online This class includes roads, fences, and shrubbery (if depreciable). Can tax form 1040x be filed online Residential rental property. Can tax form 1040x be filed online This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Can tax form 1040x be filed online It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Can tax form 1040x be filed online If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Can tax form 1040x be filed online The other property classes do not generally apply to property used in rental activities. Can tax form 1040x be filed online These classes are not discussed in this publication. Can tax form 1040x be filed online See Publication 946 for more information. Can tax form 1040x be filed online Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Can tax form 1040x be filed online The recovery periods are generally longer under ADS than GDS. Can tax form 1040x be filed online The recovery period of property depends on its property class. Can tax form 1040x be filed online Under GDS, the recovery period of an asset is generally the same as its property class. Can tax form 1040x be filed online Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Can tax form 1040x be filed online See Table 2-1 for recovery periods of property commonly used in residential rental activities. Can tax form 1040x be filed online Qualified Indian reservation property. Can tax form 1040x be filed online   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Can tax form 1040x be filed online For more information, see chapter 4 of Publication 946. Can tax form 1040x be filed online Additions or improvements to property. Can tax form 1040x be filed online   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Can tax form 1040x be filed online   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Can tax form 1040x be filed online   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Can tax form 1040x be filed online You built an addition onto the house and placed it in service in 2013. Can tax form 1040x be filed online You must use MACRS for the addition. Can tax form 1040x be filed online Under GDS, the addition is depreciated as residential rental property over 27. Can tax form 1040x be filed online 5 years. Can tax form 1040x be filed online Table 2-1. Can tax form 1040x be filed online MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Can tax form 1040x be filed online 27. Can tax form 1040x be filed online 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Can tax form 1040x be filed online   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Can tax form 1040x be filed online The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Can tax form 1040x be filed online Mid-month convention. Can tax form 1040x be filed online    A mid-month convention is used for all residential rental property and nonresidential real property. Can tax form 1040x be filed online Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Can tax form 1040x be filed online Mid-quarter convention. Can tax form 1040x be filed online   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Can tax form 1040x be filed online   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online During the tax year, Tom Martin purchased the following items to use in his rental property. Can tax form 1040x be filed online He elects not to claim the special depreciation allowance discussed earlier. Can tax form 1040x be filed online A dishwasher for $400 that he placed in service in January. Can tax form 1040x be filed online Used furniture for $100 that he placed in service in September. Can tax form 1040x be filed online A refrigerator for $800 that he placed in service in October. Can tax form 1040x be filed online Tom uses the calendar year as his tax year. Can tax form 1040x be filed online The total basis of all property placed in service that year is $1,300. Can tax form 1040x be filed online The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Can tax form 1040x be filed online Tom must use the mid-quarter convention instead of the half-year convention for all three items. Can tax form 1040x be filed online Half-year convention. Can tax form 1040x be filed online    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Can tax form 1040x be filed online Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. Can tax form 1040x be filed online   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Can tax form 1040x be filed online You deduct a full year of depreciation for any other year during the recovery period. Can tax form 1040x be filed online Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Can tax form 1040x be filed online The deduction is substantially the same both ways. Can tax form 1040x be filed online You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Can tax form 1040x be filed online In this publication we will use the percentage tables. Can tax form 1040x be filed online For instructions on how to compute the deduction, see chapter 4 of Publication 946. Can tax form 1040x be filed online Residential rental property. Can tax form 1040x be filed online   You must use the straight line method and a mid-month convention for residential rental property. Can tax form 1040x be filed online In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Can tax form 1040x be filed online 5-, 7-, or 15-year property. Can tax form 1040x be filed online   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Can tax form 1040x be filed online However, in limited cases you must use the mid-quarter convention, if it applies. Can tax form 1040x be filed online For property in the 15-year class, use the 150% declining balance method and a half-year convention. Can tax form 1040x be filed online   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Can tax form 1040x be filed online The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Can tax form 1040x be filed online You make this election on Form 4562. Can tax form 1040x be filed online In Part III, column (f), enter “150 DB. Can tax form 1040x be filed online ” Once you make this election, you cannot change to another method. Can tax form 1040x be filed online   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Can tax form 1040x be filed online   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Can tax form 1040x be filed online The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Can tax form 1040x be filed online You elect the straight line method on Form 4562. Can tax form 1040x be filed online In Part III, column (f), enter “S/L. Can tax form 1040x be filed online ” Once you make this election, you cannot change to another method. Can tax form 1040x be filed online MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Can tax form 1040x be filed online The tables show the percentages for the first few years or until the change to the straight line method is made. Can tax form 1040x be filed online See Appendix A of Publication 946 for complete tables. Can tax form 1040x be filed online The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Can tax form 1040x be filed online If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Can tax form 1040x be filed online How to use the percentage tables. Can tax form 1040x be filed online   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Can tax form 1040x be filed online   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Can tax form 1040x be filed online   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Can tax form 1040x be filed online For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Can tax form 1040x be filed online See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Can tax form 1040x be filed online Unadjusted basis. Can tax form 1040x be filed online   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Can tax form 1040x be filed online   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Can tax form 1040x be filed online For more information, see chapter 4 of Publication 946. Can tax form 1040x be filed online Please click here for the text description of the image. Can tax form 1040x be filed online Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Can tax form 1040x be filed online   The percentages in these tables take into account the half-year and mid-quarter conventions. Can tax form 1040x be filed online Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Can tax form 1040x be filed online Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Can tax form 1040x be filed online If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Can tax form 1040x be filed online Example 1. Can tax form 1040x be filed online You purchased a stove and refrigerator and placed them in service in June. Can tax form 1040x be filed online Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Can tax form 1040x be filed online Both are 5-year property. Can tax form 1040x be filed online Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Can tax form 1040x be filed online For that year your depreciation deduction is $120 ($600 × . Can tax form 1040x be filed online 20) for the stove and $200 ($1,000 × . Can tax form 1040x be filed online 20) for the refrigerator. Can tax form 1040x be filed online For Year 2, the depreciation percentage is 32%. Can tax form 1040x be filed online That year's depreciation deduction will be $192 ($600 × . Can tax form 1040x be filed online 32) for the stove and $320 ($1,000 × . Can tax form 1040x be filed online 32) for the refrigerator. Can tax form 1040x be filed online Example 2. Can tax form 1040x be filed online Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Can tax form 1040x be filed online Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Can tax form 1040x be filed online 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Can tax form 1040x be filed online Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Can tax form 1040x be filed online Your depreciation deduction for the refrigerator is $50 ($1,000 x . Can tax form 1040x be filed online 05). Can tax form 1040x be filed online Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Can tax form 1040x be filed online For that year, your depreciation deduction for the stove is $150 ($600 x . Can tax form 1040x be filed online 25). Can tax form 1040x be filed online Table 2-2d. Can tax form 1040x be filed online    Use this table when you are using the GDS 27. Can tax form 1040x be filed online 5 year option for residential rental property. Can tax form 1040x be filed online Find the row for the month that you placed the property in service. Can tax form 1040x be filed online Use the percentages listed for that month to figure your depreciation deduction. Can tax form 1040x be filed online The mid-month convention is taken into account in the percentages shown in the table. Can tax form 1040x be filed online Continue to use the same row (month) under the column for the appropriate year. Can tax form 1040x be filed online Example. Can tax form 1040x be filed online You purchased a single family rental house for $185,000 and placed it in service on February 8. Can tax form 1040x be filed online The sales contract showed that the building cost $160,000 and the land cost $25,000. Can tax form 1040x be filed online Your basis for depreciation is its original cost, $160,000. Can tax form 1040x be filed online This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Can tax form 1040x be filed online 5 years. Can tax form 1040x be filed online Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Can tax form 1040x be filed online 182%. Can tax form 1040x be filed online That year's depreciation deduction is $5,091 ($160,000 x . Can tax form 1040x be filed online 03182). Can tax form 1040x be filed online Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Can tax form 1040x be filed online See Appendix B in Publication 946 for other property. Can tax form 1040x be filed online If your property is not listed in Appendix B, it is considered to have no class life. Can tax form 1040x be filed online Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Can tax form 1040x be filed online Use the mid-month convention for residential rental property and nonresidential real property. Can tax form 1040x be filed online For all other property, use the half-year or mid-quarter convention, as appropriate. Can tax form 1040x be filed online See Publication 946 for ADS depreciation tables. Can tax form 1040x be filed online Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Can tax form 1040x be filed online If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Can tax form 1040x be filed online For more information, see Depreciation under Decreases to Basis in Publication 551. Can tax form 1040x be filed online If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Can tax form 1040x be filed online S. Can tax form 1040x be filed online Individual Income Tax Return. Can tax form 1040x be filed online If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Can tax form 1040x be filed online Filing an amended return. Can tax form 1040x be filed online   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Can tax form 1040x be filed online You claimed the incorrect amount because of a mathematical error made in any year. Can tax form 1040x be filed online You claimed the incorrect amount because of a posting error made in any year. Can tax form 1040x be filed online You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Can tax form 1040x be filed online You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Can tax form 1040x be filed online   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Can tax form 1040x be filed online This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Can tax form 1040x be filed online   If an amended return is allowed, you must file it by the later of the following dates. Can tax form 1040x be filed online 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Can tax form 1040x be filed online A return filed before an unextended due date is considered filed on that due date. Can tax form 1040x be filed online 2 years from the time you paid your tax for that year. Can tax form 1040x be filed online Changing your accounting method. Can tax form 1040x be filed online   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Can tax form 1040x be filed online In some instances, that consent is automatic. Can tax form 1040x be filed online For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. Can tax form 1040x be filed online Prev  Up  Next   Home   More Online Publications