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Efile 7004 Tax Extension

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Efile 7004 Tax Extension

Efile 7004 tax extension 4. Efile 7004 tax extension   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. Efile 7004 tax extension Rent-to-own contract. Efile 7004 tax extension What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Efile 7004 tax extension MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Efile 7004 tax extension Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Efile 7004 tax extension To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. Efile 7004 tax extension This chapter explains how to determine which MACRS depreciation system applies to your property. Efile 7004 tax extension It also discusses other information you need to know before you can figure depreciation under MACRS. Efile 7004 tax extension This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. Efile 7004 tax extension It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. Efile 7004 tax extension Finally, it explains when and how to recapture MACRS depreciation. Efile 7004 tax extension Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Efile 7004 tax extension Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Efile 7004 tax extension You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Efile 7004 tax extension If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Efile 7004 tax extension Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Efile 7004 tax extension If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. Efile 7004 tax extension Required use of ADS. Efile 7004 tax extension   You must use ADS for the following property. Efile 7004 tax extension Listed property used 50% or less in a qualified business use. Efile 7004 tax extension See chapter 5 for information on listed property. Efile 7004 tax extension Any tangible property used predominantly outside the United States during the year. Efile 7004 tax extension Any tax-exempt use property. Efile 7004 tax extension Any tax-exempt bond-financed property. Efile 7004 tax extension All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Efile 7004 tax extension Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Efile 7004 tax extension If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. Efile 7004 tax extension Electing ADS. Efile 7004 tax extension   Although your property may qualify for GDS, you can elect to use ADS. Efile 7004 tax extension The election generally must cover all property in the same property class that you placed in service during the year. Efile 7004 tax extension However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Efile 7004 tax extension Once you make this election, you can never revoke it. Efile 7004 tax extension   You make the election by completing line 20 in Part III of Form 4562. Efile 7004 tax extension Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. Efile 7004 tax extension These property classes are also listed under column (a) in section B, Part III, of Form 4562. Efile 7004 tax extension For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Efile 7004 tax extension 3-year property. Efile 7004 tax extension Tractor units for over-the-road use. Efile 7004 tax extension Any race horse over 2 years old when placed in service. Efile 7004 tax extension (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. Efile 7004 tax extension ) Any other horse (other than a race horse) over 12 years old when placed in service. Efile 7004 tax extension Qualified rent-to-own property (defined later). Efile 7004 tax extension 5-year property. Efile 7004 tax extension Automobiles, taxis, buses, and trucks. Efile 7004 tax extension Computers and peripheral equipment. Efile 7004 tax extension Office machinery (such as typewriters, calculators, and copiers). Efile 7004 tax extension Any property used in research and experimentation. Efile 7004 tax extension Breeding cattle and dairy cattle. Efile 7004 tax extension Appliances, carpets, furniture, etc. Efile 7004 tax extension , used in a residential rental real estate activity. Efile 7004 tax extension Certain geothermal, solar, and wind energy property. Efile 7004 tax extension 7-year property. Efile 7004 tax extension Office furniture and fixtures (such as desks, files, and safes). Efile 7004 tax extension Agricultural machinery and equipment. Efile 7004 tax extension Any property that does not have a class life and has not been designated by law as being in any other class. Efile 7004 tax extension Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Efile 7004 tax extension Any natural gas gathering line placed in service after April 11, 2005. Efile 7004 tax extension See Natural gas gathering line and electric transmission property , later. Efile 7004 tax extension 10-year property. Efile 7004 tax extension Vessels, barges, tugs, and similar water transportation equipment. Efile 7004 tax extension Any single purpose agricultural or horticultural structure. Efile 7004 tax extension Any tree or vine bearing fruits or nuts. Efile 7004 tax extension Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Efile 7004 tax extension 15-year property. Efile 7004 tax extension Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Efile 7004 tax extension Any retail motor fuels outlet (defined later), such as a convenience store. Efile 7004 tax extension Any municipal wastewater treatment plant. Efile 7004 tax extension Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Efile 7004 tax extension Any qualified restaurant property (defined later) placed in service before January 1, 2014. Efile 7004 tax extension Initial clearing and grading land improvements for gas utility property. Efile 7004 tax extension Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. Efile 7004 tax extension See Natural gas gathering line and electric transmission property , later. Efile 7004 tax extension Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Efile 7004 tax extension Any qualified retail improvement property placed in service before January 1, 2014. Efile 7004 tax extension 20-year property. Efile 7004 tax extension Farm buildings (other than single purpose agricultural or horticultural structures). Efile 7004 tax extension Municipal sewers not classified as 25-year property. Efile 7004 tax extension Initial clearing and grading land improvements for electric utility transmission and distribution plants. Efile 7004 tax extension 25-year property. Efile 7004 tax extension This class is water utility property, which is either of the following. Efile 7004 tax extension Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. Efile 7004 tax extension Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Efile 7004 tax extension Residential rental property. Efile 7004 tax extension This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. Efile 7004 tax extension A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Efile 7004 tax extension It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. Efile 7004 tax extension If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. Efile 7004 tax extension Nonresidential real property. Efile 7004 tax extension This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. Efile 7004 tax extension 5 years. Efile 7004 tax extension Qualified rent-to-own property. Efile 7004 tax extension   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. Efile 7004 tax extension It is tangible personal property generally used in the home for personal use. Efile 7004 tax extension It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Efile 7004 tax extension Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Efile 7004 tax extension   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. Efile 7004 tax extension However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. Efile 7004 tax extension Rent-to-own dealer. Efile 7004 tax extension   You are a rent-to-own dealer if you meet all the following requirements. Efile 7004 tax extension You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Efile 7004 tax extension A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Efile 7004 tax extension The property is tangible personal property of a type generally used within the home for personal use. Efile 7004 tax extension Rent-to-own contract. Efile 7004 tax extension   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. Efile 7004 tax extension Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). Efile 7004 tax extension Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Efile 7004 tax extension If the payments are decreasing, no payment can be less than 40% of the largest payment. Efile 7004 tax extension Provides for total payments that generally exceed the normal retail price of the property plus interest. Efile 7004 tax extension Provides for total payments that do not exceed $10,000 for each item of property. Efile 7004 tax extension Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. Efile 7004 tax extension Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. Efile 7004 tax extension Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. Efile 7004 tax extension Motorsports entertainment complex. Efile 7004 tax extension   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. Efile 7004 tax extension The events must be open to the public for the price of admission. Efile 7004 tax extension Qualified smart electric grid system. Efile 7004 tax extension   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Efile 7004 tax extension Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. Efile 7004 tax extension Retail motor fuels outlet. Efile 7004 tax extension   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. Efile 7004 tax extension It is not larger than 1,400 square feet. Efile 7004 tax extension 50% or more of the gross revenues generated from the property are derived from petroleum sales. Efile 7004 tax extension 50% or more of the floor space in the property is devoted to petroleum marketing sales. Efile 7004 tax extension A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Efile 7004 tax extension Qualified leasehold improvement property. Efile 7004 tax extension    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Efile 7004 tax extension   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. Efile 7004 tax extension A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Efile 7004 tax extension Examples include the following. Efile 7004 tax extension A complete liquidation of a subsidiary. Efile 7004 tax extension A transfer to a corporation controlled by the transferor. Efile 7004 tax extension An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Efile 7004 tax extension Qualified restaurant property. Efile 7004 tax extension   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Efile 7004 tax extension Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. Efile 7004 tax extension Qualified smart electric meter. Efile 7004 tax extension   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. Efile 7004 tax extension Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. Efile 7004 tax extension Natural gas gathering line and electric transmission property. Efile 7004 tax extension   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. Efile 7004 tax extension The original use of the property must have begun with you after April 11, 2005. Efile 7004 tax extension Original use means the first use to which the property is put, whether or not by you. Efile 7004 tax extension Therefore, property used by any person before April 12, 2005, is not original use. Efile 7004 tax extension Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Efile 7004 tax extension However, original use does not include the cost of reconditioned or rebuilt property you acquired. Efile 7004 tax extension Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. Efile 7004 tax extension The property must not be placed in service under a binding contract in effect before April 12, 2005. Efile 7004 tax extension The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. Efile 7004 tax extension Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. Efile 7004 tax extension What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. Efile 7004 tax extension The placed in service date for your property is the date the property is ready and available for a specific use. Efile 7004 tax extension It is therefore not necessarily the date it is first used. Efile 7004 tax extension If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Efile 7004 tax extension See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Efile 7004 tax extension What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Efile 7004 tax extension For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . Efile 7004 tax extension Reduce that amount by any credits and deductions allocable to the property. Efile 7004 tax extension The following are examples of some credits and deductions that reduce basis. Efile 7004 tax extension Any deduction for section 179 property. Efile 7004 tax extension Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Efile 7004 tax extension Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. Efile 7004 tax extension Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. Efile 7004 tax extension Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . Efile 7004 tax extension Any deduction for removal of barriers to the disabled and the elderly. Efile 7004 tax extension Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Efile 7004 tax extension Any special depreciation allowance. Efile 7004 tax extension Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Efile 7004 tax extension For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Efile 7004 tax extension Enter the basis for depreciation under column (c) in Part III of Form 4562. Efile 7004 tax extension For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . Efile 7004 tax extension Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Efile 7004 tax extension It is determined based on the depreciation system (GDS or ADS) used. Efile 7004 tax extension Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Efile 7004 tax extension Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. Efile 7004 tax extension 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Efile 7004 tax extension 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Efile 7004 tax extension 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Efile 7004 tax extension 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Efile 7004 tax extension 431. Efile 7004 tax extension 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). Efile 7004 tax extension The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Efile 7004 tax extension Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Efile 7004 tax extension Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). Efile 7004 tax extension Office in the home. Efile 7004 tax extension   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. Efile 7004 tax extension 5 years if you began using it for business before May 13, 1993). Efile 7004 tax extension However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. Efile 7004 tax extension 5 years. Efile 7004 tax extension See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Efile 7004 tax extension Home changed to rental use. Efile 7004 tax extension   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Efile 7004 tax extension 5 years. Efile 7004 tax extension Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. Efile 7004 tax extension The following table shows these shorter recovery periods. Efile 7004 tax extension Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . Efile 7004 tax extension Use this chart to find the correct percentage table to use for qualified Indian reservation property. Efile 7004 tax extension IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. Efile 7004 tax extension   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Efile 7004 tax extension You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Efile 7004 tax extension The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. Efile 7004 tax extension   The following property is not qualified property. Efile 7004 tax extension Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Efile 7004 tax extension Property acquired directly or indirectly from a related person. Efile 7004 tax extension Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Efile 7004 tax extension These activities are defined in section 4 of the Indian Regulatory Act (25 U. Efile 7004 tax extension S. Efile 7004 tax extension C. Efile 7004 tax extension 2703). Efile 7004 tax extension Any property you must depreciate under ADS. Efile 7004 tax extension Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). Efile 7004 tax extension Qualified infrastructure property. Efile 7004 tax extension   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. Efile 7004 tax extension Qualified infrastructure property is property that meets all the following rules. Efile 7004 tax extension It is qualified property, as defined earlier, except that it is outside the reservation. Efile 7004 tax extension It benefits the tribal infrastructure. Efile 7004 tax extension It is available to the general public. Efile 7004 tax extension It is placed in service in connection with the active conduct of a trade or business within a reservation. Efile 7004 tax extension Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Efile 7004 tax extension Related person. Efile 7004 tax extension   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. Efile 7004 tax extension Indian reservation. Efile 7004 tax extension   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Efile 7004 tax extension S. Efile 7004 tax extension C. Efile 7004 tax extension 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Efile 7004 tax extension S. Efile 7004 tax extension C. Efile 7004 tax extension 1903(10)). Efile 7004 tax extension Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Efile 7004 tax extension For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Efile 7004 tax extension Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Efile 7004 tax extension The following table shows some of the ADS recovery periods. Efile 7004 tax extension Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. Efile 7004 tax extension Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . Efile 7004 tax extension Tax-exempt use property subject to a lease. Efile 7004 tax extension   The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term. Efile 7004 tax extension Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Efile 7004 tax extension See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Efile 7004 tax extension Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Efile 7004 tax extension The recovery period begins on the later of the following dates. Efile 7004 tax extension The date you place the addition or improvement in service. Efile 7004 tax extension The date you place in service the property to which you made the addition or improvement. Efile 7004 tax extension If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). Efile 7004 tax extension Example. Efile 7004 tax extension You own a rental home that you have been renting out since 1981. Efile 7004 tax extension If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Efile 7004 tax extension Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Efile 7004 tax extension 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. Efile 7004 tax extension Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Efile 7004 tax extension 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. Efile 7004 tax extension The mid-month convention. Efile 7004 tax extension   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Efile 7004 tax extension   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. Efile 7004 tax extension This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Efile 7004 tax extension   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Efile 7004 tax extension The mid-quarter convention. Efile 7004 tax extension   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. Efile 7004 tax extension   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. Efile 7004 tax extension This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Efile 7004 tax extension   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Efile 7004 tax extension    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. Efile 7004 tax extension However, it does not reflect any reduction in basis for any special depreciation allowance. Efile 7004 tax extension The half-year convention. Efile 7004 tax extension   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Efile 7004 tax extension   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 the year. Efile 7004 tax extension This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Efile 7004 tax extension   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Efile 7004 tax extension Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Efile 7004 tax extension The 200% declining balance method over a GDS recovery period. Efile 7004 tax extension The 150% declining balance method over a GDS recovery period. Efile 7004 tax extension The straight line method over a GDS recovery period. Efile 7004 tax extension The straight line method over an ADS recovery period. Efile 7004 tax extension For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. Efile 7004 tax extension If you made this election, continue to use the same method and recovery period for that property. Efile 7004 tax extension Table 4–1 lists the types of property you can depreciate under each method. Efile 7004 tax extension It also gives a brief explanation of the method, including any benefits that may apply. Efile 7004 tax extension Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. Efile 7004 tax extension You can depreciate real property using the straight line method under either GDS or ADS. Efile 7004 tax extension Fruit or nut trees and vines. Efile 7004 tax extension   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Efile 7004 tax extension ADS required for some farmers. Efile 7004 tax extension   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Efile 7004 tax extension You must use ADS for all property you place in service in any year the election is in effect. Efile 7004 tax extension See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Efile 7004 tax extension Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Efile 7004 tax extension You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Efile 7004 tax extension However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Efile 7004 tax extension Attach the election to the amended return and write “Filed pursuant to section 301. Efile 7004 tax extension 9100-2” on the election statement. Efile 7004 tax extension File the amended return at the same address you filed the original return. Efile 7004 tax extension Once you make the election, you cannot change it. Efile 7004 tax extension If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Efile 7004 tax extension However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Efile 7004 tax extension 150% election. Efile 7004 tax extension   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. Efile 7004 tax extension Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Efile 7004 tax extension Straight line election. Efile 7004 tax extension   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. Efile 7004 tax extension Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Efile 7004 tax extension Election of ADS. Efile 7004 tax extension   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Efile 7004 tax extension ADS uses the straight line method of depreciation over fixed ADS recovery periods. Efile 7004 tax extension Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Efile 7004 tax extension   Make the election by completing line 20 in Part III of Form 4562. Efile 7004 tax extension Farm property. Efile 7004 tax extension   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. Efile 7004 tax extension The straight line method over a GDS recovery period. Efile 7004 tax extension The straight line method over an ADS recovery period. Efile 7004 tax extension Table 4-1. Efile 7004 tax extension Depreciation Methods Note. Efile 7004 tax extension The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Efile 7004 tax extension Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. Efile 7004 tax extension S. Efile 7004 tax extension  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. Efile 7004 tax extension 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Efile 7004 tax extension Then, you are ready to figure your depreciation deduction. Efile 7004 tax extension You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Efile 7004 tax extension Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Efile 7004 tax extension These percentage tables are in Appendix A near the end of this publication. Efile 7004 tax extension Which table to use. Efile 7004 tax extension    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. Efile 7004 tax extension The percentage tables immediately follow the guide. Efile 7004 tax extension Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Efile 7004 tax extension You must apply the rates in the percentage tables to your property's unadjusted basis. Efile 7004 tax extension You cannot use the percentage tables for a short tax year. Efile 7004 tax extension See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Efile 7004 tax extension Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. Efile 7004 tax extension You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. Efile 7004 tax extension Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. Efile 7004 tax extension Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Efile 7004 tax extension   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. Efile 7004 tax extension For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. Efile 7004 tax extension See Figuring the Deduction Without Using the Tables, later. Efile 7004 tax extension Basis adjustment due to casualty loss. Efile 7004 tax extension   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Efile 7004 tax extension For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Efile 7004 tax extension See Figuring the Deduction Without Using the Tables, later. Efile 7004 tax extension Example. Efile 7004 tax extension On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. Efile 7004 tax extension It cost $39,000 and she elected a section 179 deduction of $24,000. Efile 7004 tax extension She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Efile 7004 tax extension Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Efile 7004 tax extension She figured her MACRS depreciation deduction using the percentage tables. Efile 7004 tax extension For 2012, her MACRS depreciation deduction was $268. Efile 7004 tax extension In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Efile 7004 tax extension She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Efile 7004 tax extension Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Efile 7004 tax extension She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. Efile 7004 tax extension She must now figure her depreciation for 2013 without using the percentage tables. Efile 7004 tax extension Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. Efile 7004 tax extension Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. Efile 7004 tax extension However, you do reduce your original basis by other amounts, including the following. Efile 7004 tax extension Any amortization taken on the property. Efile 7004 tax extension Any section 179 deduction claimed. Efile 7004 tax extension Any special depreciation allowance taken on the property. Efile 7004 tax extension For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Efile 7004 tax extension If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. Efile 7004 tax extension MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Efile 7004 tax extension Use a separate worksheet for each item of property. Efile 7004 tax extension Then, use the information from this worksheet to prepare Form 4562. Efile 7004 tax extension Do not use this worksheet for automobiles. Efile 7004 tax extension Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Efile 7004 tax extension MACRS Worksheet Part I   1. Efile 7004 tax extension MACRS system (GDS or ADS)   2. Efile 7004 tax extension Property class   3. Efile 7004 tax extension Date placed in service   4. Efile 7004 tax extension Recovery period   5. Efile 7004 tax extension Method and convention   6. Efile 7004 tax extension Depreciation rate (from tables)   Part II   7. Efile 7004 tax extension Cost or other basis* $     8. Efile 7004 tax extension Business/investment use   %   9. Efile 7004 tax extension Multiply line 7 by line 8   $ 10. Efile 7004 tax extension Total claimed for section 179 deduction and other items   $ 11. Efile 7004 tax extension Subtract line 10 from line 9. Efile 7004 tax extension This is your tentative basis for depreciation   $ 12. Efile 7004 tax extension Multiply line 11 by . Efile 7004 tax extension 50 if the 50% special depreciation allowance applies. Efile 7004 tax extension This is your special depreciation allowance. Efile 7004 tax extension Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. Efile 7004 tax extension Subtract line 12 from line 11. Efile 7004 tax extension This is your basis for depreciation     14. Efile 7004 tax extension Depreciation rate (from line 6)     15. Efile 7004 tax extension Multiply line 13 by line 14. Efile 7004 tax extension This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Efile 7004 tax extension The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Efile 7004 tax extension Example. Efile 7004 tax extension You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Efile 7004 tax extension You use the furniture only for business. Efile 7004 tax extension This is the only property you placed in service this year. Efile 7004 tax extension You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. Efile 7004 tax extension You use GDS and the half-year convention to figure your depreciation. Efile 7004 tax extension You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Efile 7004 tax extension Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Efile 7004 tax extension You figure your depreciation deduction using the MACRS worksheet as follows. Efile 7004 tax extension MACRS Worksheet Part I 1. Efile 7004 tax extension MACRS system (GDS or ADS) GDS 2. Efile 7004 tax extension Property class 7-year 3. Efile 7004 tax extension Date placed in service 8/11/13 4. Efile 7004 tax extension Recovery period 7-Year 5. Efile 7004 tax extension Method and convention 200%DB/Half-Year 6. Efile 7004 tax extension Depreciation rate (from tables) . Efile 7004 tax extension 1429 Part II 7. Efile 7004 tax extension Cost or other basis* $10,000     8. Efile 7004 tax extension Business/investment use 100 %   9. Efile 7004 tax extension Multiply line 7 by line 8   $10,000 10. Efile 7004 tax extension Total claimed for section 179 deduction and other items   -0- 11. Efile 7004 tax extension Subtract line 10 from line 9. Efile 7004 tax extension This is your tentative basis for depreciation   $10,000 12. Efile 7004 tax extension Multiply line 11 by . Efile 7004 tax extension 50 if the 50% special depreciation allowance applies. Efile 7004 tax extension This is your special depreciation allowance. Efile 7004 tax extension Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. Efile 7004 tax extension Subtract line 12 from line 11. Efile 7004 tax extension This is your basis for depreciation   $10,000 14. Efile 7004 tax extension Depreciation rate (from line 6)   . Efile 7004 tax extension 1429 15. Efile 7004 tax extension Multiply line 13 by line 14. Efile 7004 tax extension This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Efile 7004 tax extension If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. Efile 7004 tax extension Year   Basis Percentage Deduction 2014 $ 10,000 24. Efile 7004 tax extension 49%   $2,449   2015   10,000 17. Efile 7004 tax extension 49   1,749   2016   10,000 12. Efile 7004 tax extension 49   1,249   2017   10,000 8. Efile 7004 tax extension 93   893   2018   10,000 8. Efile 7004 tax extension 92   892   2019   10,000 8. Efile 7004 tax extension 93   893   2020   10,000 4. Efile 7004 tax extension 46   446   Examples The following examples are provided to show you how to use the percentage tables. Efile 7004 tax extension In both examples, assume the following. Efile 7004 tax extension You use the property only for business. Efile 7004 tax extension You use the calendar year as your tax year. Efile 7004 tax extension You use GDS for all the properties. Efile 7004 tax extension Example 1. Efile 7004 tax extension You bought a building and land for $120,000 and placed it in service on March 8. Efile 7004 tax extension The sales contract showed that the building cost $100,000 and the land cost $20,000. Efile 7004 tax extension It is nonresidential real property. Efile 7004 tax extension The building's unadjusted basis is its original cost, $100,000. Efile 7004 tax extension You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Efile 7004 tax extension March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. Efile 7004 tax extension Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Efile 7004 tax extension 033%   $2,033   2nd   100,000 2. Efile 7004 tax extension 564   2,564   3rd   100,000 2. Efile 7004 tax extension 564   2,564   Example 2. Efile 7004 tax extension During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. Efile 7004 tax extension You placed the machine in service in January, the furniture in September, and the computer in October. Efile 7004 tax extension You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Efile 7004 tax extension You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. Efile 7004 tax extension The total bases of all property you placed in service during the year is $10,000. Efile 7004 tax extension The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Efile 7004 tax extension Therefore, you must use the mid-quarter convention for all three items. Efile 7004 tax extension You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Efile 7004 tax extension The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Efile 7004 tax extension The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Efile 7004 tax extension Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Efile 7004 tax extension Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Efile 7004 tax extension Year Property Basis Percentage Deduction 1st Machine $4,000 25. Efile 7004 tax extension 00 $1,000   2nd Machine 4,000 21. Efile 7004 tax extension 43 857   1st Furniture 1,000 10. Efile 7004 tax extension 71 107   2nd Furniture 1,000 25. Efile 7004 tax extension 51 255   1st Computer 5,000 5. Efile 7004 tax extension 00 250   2nd Computer 5,000 38. Efile 7004 tax extension 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. Efile 7004 tax extension You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. Efile 7004 tax extension After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Efile 7004 tax extension Half-year convention used. Efile 7004 tax extension   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. Efile 7004 tax extension Mid-quarter convention used. Efile 7004 tax extension   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. Efile 7004 tax extension Quarter Percentage First 12. Efile 7004 tax extension 5% Second 37. Efile 7004 tax extension 5 Third 62. Efile 7004 tax extension 5 Fourth 87. Efile 7004 tax extension 5 Example. Efile 7004 tax extension On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Efile 7004 tax extension You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Efile 7004 tax extension Your unadjusted basis for the property was $10,000. Efile 7004 tax extension You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. Efile 7004 tax extension Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Efile 7004 tax extension Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Efile 7004 tax extension 80% of $10,000). Efile 7004 tax extension You disposed of the property on April 6, 2013. Efile 7004 tax extension To determine your depreciation deduction for 2013, first figure the deduction for the full year. Efile 7004 tax extension This is $1,368 (13. Efile 7004 tax extension 68% of $10,000). Efile 7004 tax extension April is in the second quarter of the year, so you multiply $1,368 by 37. Efile 7004 tax extension 5% to get your depreciation deduction of $513 for 2013. Efile 7004 tax extension Mid-month convention used. Efile 7004 tax extension   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. Efile 7004 tax extension The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Efile 7004 tax extension The denominator is 12. Efile 7004 tax extension Example. Efile 7004 tax extension On July 2, 2011, you purchased and placed in service residential rental property. Efile 7004 tax extension The property cost $100,000, not including the cost of land. Efile 7004 tax extension You used Table A-6 to figure your MACRS depreciation for this property. Efile 7004 tax extension You sold the property on March 2, 2013. Efile 7004 tax extension You file your tax return based on the calendar year. Efile 7004 tax extension A full year of depreciation for 2013 is $3,636. Efile 7004 tax extension This is $100,000 multiplied by . Efile 7004 tax extension 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Efile 7004 tax extension You then apply the mid-month convention for the 2½ months of use in 2013. Efile 7004 tax extension Treat the month of disposition as one-half month of use. Efile 7004 tax extension Multiply $3,636 by the fraction, 2. Efile 7004 tax extension 5 over 12, to get your 2013 depreciation deduction of $757. Efile 7004 tax extension 50. Efile 7004 tax extension Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Efile 7004 tax extension Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Efile 7004 tax extension Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Efile 7004 tax extension Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Efile 7004 tax extension You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. Efile 7004 tax extension The straight line method is explained later. Efile 7004 tax extension You figure depreciation for the year you place property in service as follows. Efile 7004 tax extension Multiply your adjusted basis in the property by the declining balance rate. Efile 7004 tax extension Apply the applicable convention. Efile 7004 tax extension You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Efile 7004 tax extension Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Efile 7004 tax extension Multiply this new adjusted basis by the same declining balance rate used in earlier years. Efile 7004 tax extension If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. Efile 7004 tax extension Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Efile 7004 tax extension Declining balance rate. Efile 7004 tax extension   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. Efile 7004 tax extension For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Efile 7004 tax extension 00 (200%) by 3 to get 0. Efile 7004 tax extension 6667, or a 66. Efile 7004 tax extension 67% declining balance rate. Efile 7004 tax extension For 15-year property depreciated using the 150% declining balance method, divide 1. Efile 7004 tax extension 50 (150%) by 15 to get 0. Efile 7004 tax extension 10, or a 10% declining balance rate. Efile 7004 tax extension   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. Efile 7004 tax extension Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Efile 7004 tax extension 667% 3rd 5-year 200% DB 40. Efile 7004 tax extension 0 4th 7-year 200% DB 28. Efile 7004 tax extension 571 5th 10-year 200% DB 20. Efile 7004 tax extension 0 7th 15-year 150% DB 10. Efile 7004 tax extension 0 7th 20-year 150% DB 7. Efile 7004 tax extension 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. Efile 7004 tax extension You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Efile 7004 tax extension You figure depreciation for the year you place property in service as follows. Efile 7004 tax extension Multiply your adjusted basis in the property by the straight line rate. Efile 7004 tax extension Apply the applicable convention. Efile 7004 tax extension You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Efile 7004 tax extension Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Efile 7004 tax extension Determine the depreciation rate for the year. Efile 7004 tax extension Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Efile 7004 tax extension If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. Efile 7004 tax extension Straight line rate. Efile 7004 tax extension   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. Efile 7004 tax extension When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Efile 7004 tax extension If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Efile 7004 tax extension 0 (100%). Efile 7004 tax extension Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. Efile 7004 tax extension It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. Efile 7004 tax extension See Straight line rate in the previous discussion. Efile 7004 tax extension Use the applicable convention as explained in the following discussions. Efile 7004 tax extension Half-year convention. Efile 7004 tax extension   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. Efile 7004 tax extension You deduct a full year of depreciation for any other year during the recovery period. Efile 7004 tax extension   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Efile 7004 tax extension If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. Efile 7004 tax extension If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. Efile 7004 tax extension Mid-quarter convention. Efile 7004 tax extension   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. Efile 7004 tax extension   A quarter of a full 12-month tax year is a period of 3 months. Efile 7004 tax extension The first quarter in a year begins on the first day of the tax year. Efile 7004 tax extension The second quarter begins on the first day of the fourth month of the tax year. Efile 7004 tax extension The third quarter begins on the first day of the seventh month of the tax year. Efile 7004 tax extension The fourth quarter begins on the first day of the tenth month of the tax year. Efile 7004 tax extension A calendar year is divided into the following quarters. Efile 7004 tax extension Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. Efile 7004 tax extension Quarter Percentage First 87. Efile 7004 tax extension 5% Second 62. Efile 7004 tax extension 5 Third 37. Efile 7004 tax extension 5 Fourth 12. Efile 7004 tax extension 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. Efile 7004 tax extension Quarter Percentage First 12. Efile 7004 tax extension 5% Second 37. Efile 7004 tax extension 5 Third 62. Efile 7004 tax extension 5 Fourth 87. Efile 7004 tax extension 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. Efile 7004 tax extension Mid-month convention. Efile 7004 tax extension   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Efile 7004 tax extension Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Efile 7004 tax extension The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Efile 7004 tax extension 5). Efile 7004 tax extension The denominator is 12. Efile 7004 tax extension   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. Efile 7004 tax extension If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. Efile 7004 tax extension Example. Efile 7004 tax extension You use the calendar year and place nonresidential real property in service in August. Efile 7004 tax extension The property is in service 4 full months (September, October, November, and December). Efile 7004 tax extension Your numerator is 4. Efile 7004 tax extension 5 (4 full months plus 0. Efile 7004 tax extension 5). Efile 7004 tax extension You multiply the depreciation for a full year by 4. Efile 7004 tax extension 5/12, or 0. Efile 7004 tax extension 375. Efile 7004 tax extension Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Efile 7004 tax extension Figures are rounded for purposes of the examples. Efile 7004 tax extension Assume for all the examples that you use a calendar year as your tax year. Efile 7004 tax extension Example 1—200% DB method and half-year convention. Efile 7004 tax extension In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Efile 7004 tax extension You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Efile 7004 tax extension You use GDS and the 200% declining balance (DB) method to figure your depreciation. Efile 7004 tax extension When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Efile 7004 tax extension You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Efile 7004 tax extension First year. Efile 7004 tax extension You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Efile 7004 tax extension The result is 40%. Efile 7004 tax extension You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Efile 7004 tax extension You apply the half-year convention by dividing the result ($400) by 2. Efile 7004 tax extension Depreciation for the first year under the 200% DB method is $200. Efile 7004 tax extension You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Efile 7004 tax extension The result is 20%. Efile 7004 tax extension You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Efile 7004 tax extension You apply the half-year convention by dividing the result ($200) by 2. Efile 7004 tax extension Depreciation for the first year under the SL method is $100. Efile 7004 tax extension The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Efile 7004 tax extension Second year. Efile 7004 tax extension You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Efile 7004 tax extension You multiply the result ($800) by the DB rate (40%). Efile 7004 tax extension Depreciation for the second year under the 200% DB method is $320. Efile 7004 tax extension You figure the SL depreciation rate by dividing 1 by 4. Efile 7004 tax extension 5, the number of years remaining in the recovery period. Efile 7004 tax extension (Based on the half-year convention, you used only half a year of the recovery period in the first year. Efile 7004 tax extension ) You multiply the reduced adjusted basis ($800) by the result (22. Efile 7004 tax extension 22%). Efile 7004 tax extension Depreciation under the SL method for the second year is $178. Efile 7004 tax extension The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Efile 7004 tax extension Third year. Efile 7004 tax extension You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Efile 7004 tax extension You multiply the result ($480) by the DB rate (40%). Efile 7004 tax extension Depreciation for the third year under the 200% DB method is $192. Efile 7004 tax extension You figure the SL depreciation rate by dividing 1 by 3. Efile 7004 tax extension 5. Efile 7004 tax extension You multiply the reduced adjusted basis ($480) by the result (28. Efile 7004 tax extension 57%). Efile 7004 tax extension Depreciation under the SL method for the third year is $137. Efile 7004 tax extension The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Efile 7004 tax extension Fourth year. Efile 7004 tax extension You reduce the adjusted basis ($480) by the de
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The Efile 7004 Tax Extension

Efile 7004 tax extension Publication 15-B - Main Content Table of Contents 1. Efile 7004 tax extension Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Efile 7004 tax extension Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. Efile 7004 tax extension Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Efile 7004 tax extension Rules for Withholding, Depositing, and ReportingTransfer of property. Efile 7004 tax extension Amount of deposit. Efile 7004 tax extension Limitation. Efile 7004 tax extension Conformity rules. Efile 7004 tax extension Election not to withhold income tax. Efile 7004 tax extension How To Get Tax Help 1. Efile 7004 tax extension Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Efile 7004 tax extension For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Efile 7004 tax extension Performance of services. Efile 7004 tax extension   A person who performs services for you does not have to be your employee. Efile 7004 tax extension A person may perform services for you as an independent contractor, partner, or director. Efile 7004 tax extension Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Efile 7004 tax extension Provider of benefit. Efile 7004 tax extension   You are the provider of a fringe benefit if it is provided for services performed for you. Efile 7004 tax extension You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Efile 7004 tax extension For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Efile 7004 tax extension Recipient of benefit. Efile 7004 tax extension   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Efile 7004 tax extension That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Efile 7004 tax extension For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Efile 7004 tax extension Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Efile 7004 tax extension Section 2 discusses the exclusions that apply to certain fringe benefits. Efile 7004 tax extension Any benefit not excluded under the rules discussed in section 2 is taxable. Efile 7004 tax extension Including taxable benefits in pay. Efile 7004 tax extension   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Efile 7004 tax extension Any amount the law excludes from pay. Efile 7004 tax extension Any amount the recipient paid for the benefit. Efile 7004 tax extension The rules used to determine the value of a fringe benefit are discussed in section 3. Efile 7004 tax extension   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Efile 7004 tax extension However, you can use special rules to withhold, deposit, and report the employment taxes. Efile 7004 tax extension These rules are discussed in section 4. Efile 7004 tax extension   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Efile 7004 tax extension However, you may have to report the benefit on one of the following information returns. Efile 7004 tax extension If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Efile 7004 tax extension For more information, see the instructions for the forms listed above. Efile 7004 tax extension Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Efile 7004 tax extension If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. Efile 7004 tax extension Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Efile 7004 tax extension However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Efile 7004 tax extension Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Efile 7004 tax extension Qualified benefits. Efile 7004 tax extension   A cafeteria plan can include the following benefits discussed in section 2. Efile 7004 tax extension Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Efile 7004 tax extension Adoption assistance. Efile 7004 tax extension Dependent care assistance. Efile 7004 tax extension Group-term life insurance coverage (including costs that cannot be excluded from wages). Efile 7004 tax extension Health savings accounts (HSAs). Efile 7004 tax extension Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Efile 7004 tax extension Benefits not allowed. Efile 7004 tax extension   A cafeteria plan cannot include the following benefits discussed in section 2. Efile 7004 tax extension Archer MSAs. Efile 7004 tax extension See Accident and Health Benefits in section 2. Efile 7004 tax extension Athletic facilities. Efile 7004 tax extension De minimis (minimal) benefits. Efile 7004 tax extension Educational assistance. Efile 7004 tax extension Employee discounts. Efile 7004 tax extension Employer-provided cell phones. Efile 7004 tax extension Lodging on your business premises. Efile 7004 tax extension Meals. Efile 7004 tax extension Moving expense reimbursements. Efile 7004 tax extension No-additional-cost services. Efile 7004 tax extension Transportation (commuting) benefits. Efile 7004 tax extension Tuition reduction. Efile 7004 tax extension Working condition benefits. Efile 7004 tax extension It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Efile 7004 tax extension $2,500 limit on a health flexible spending arrangement (FSA). Efile 7004 tax extension   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Efile 7004 tax extension For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Efile 7004 tax extension   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Efile 7004 tax extension While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Efile 7004 tax extension A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Efile 7004 tax extension   For more information, see Notice 2012-40, 2012-26 I. Efile 7004 tax extension R. Efile 7004 tax extension B. Efile 7004 tax extension 1046, available at www. Efile 7004 tax extension irs. Efile 7004 tax extension gov/irb/2012-26_IRB/ar09. Efile 7004 tax extension html. Efile 7004 tax extension Employee. Efile 7004 tax extension   For these plans, treat the following individuals as employees. Efile 7004 tax extension A current common-law employee. Efile 7004 tax extension See section 2 in Publication 15 (Circular E) for more information. Efile 7004 tax extension A full-time life insurance agent who is a current statutory employee. Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension Exception for S corporation shareholders. Efile 7004 tax extension   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Efile 7004 tax extension A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Efile 7004 tax extension Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Efile 7004 tax extension Plans that favor highly compensated employees. Efile 7004 tax extension   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. Efile 7004 tax extension A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Efile 7004 tax extension   A highly compensated employee for this purpose is any of the following employees. Efile 7004 tax extension An officer. Efile 7004 tax extension A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Efile 7004 tax extension An employee who is highly compensated based on the facts and circumstances. Efile 7004 tax extension A spouse or dependent of a person described in (1), (2), or (3). Efile 7004 tax extension Plans that favor key employees. Efile 7004 tax extension   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Efile 7004 tax extension A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Efile 7004 tax extension However, a plan you maintain under a collective bargaining agreement does not favor key employees. Efile 7004 tax extension   A key employee during 2014 is generally an employee who is either of the following. Efile 7004 tax extension An officer having annual pay of more than $170,000. Efile 7004 tax extension An employee who for 2014 is either of the following. Efile 7004 tax extension A 5% owner of your business. Efile 7004 tax extension A 1% owner of your business whose annual pay was more than $150,000. Efile 7004 tax extension Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Efile 7004 tax extension Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Efile 7004 tax extension Eligible employer. Efile 7004 tax extension   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Efile 7004 tax extension If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Efile 7004 tax extension If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Efile 7004 tax extension Eligibility and participation requirements. Efile 7004 tax extension   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Efile 7004 tax extension You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Efile 7004 tax extension S. Efile 7004 tax extension source. Efile 7004 tax extension Contribution requirements. Efile 7004 tax extension   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Efile 7004 tax extension If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Efile 7004 tax extension More information. Efile 7004 tax extension   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Efile 7004 tax extension 2. Efile 7004 tax extension Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Efile 7004 tax extension These rules exclude all or part of the value of certain benefits from the recipient's pay. Efile 7004 tax extension The excluded benefits are not subject to federal income tax withholding. Efile 7004 tax extension Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Efile 7004 tax extension This section discusses the exclusion rules for the following fringe benefits. Efile 7004 tax extension Accident and health benefits. Efile 7004 tax extension Achievement awards. Efile 7004 tax extension Adoption assistance. Efile 7004 tax extension Athletic facilities. Efile 7004 tax extension De minimis (minimal) benefits. Efile 7004 tax extension Dependent care assistance. Efile 7004 tax extension Educational assistance. Efile 7004 tax extension Employee discounts. Efile 7004 tax extension Employee stock options. Efile 7004 tax extension Employer-provided cell phones. Efile 7004 tax extension Group-term life insurance coverage. Efile 7004 tax extension Health savings accounts (HSAs). Efile 7004 tax extension Lodging on your business premises. Efile 7004 tax extension Meals. Efile 7004 tax extension Moving expense reimbursements. Efile 7004 tax extension No-additional-cost services. Efile 7004 tax extension Retirement planning services. Efile 7004 tax extension Transportation (commuting) benefits. Efile 7004 tax extension Tuition reduction. Efile 7004 tax extension Working condition benefits. Efile 7004 tax extension See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Efile 7004 tax extension Table 2-1. Efile 7004 tax extension Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Efile 7004 tax extension ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Efile 7004 tax extension Exempt, except for certain payments to S corporation employees who are 2% shareholders. Efile 7004 tax extension Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Efile 7004 tax extension Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Efile 7004 tax extension De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Efile 7004 tax extension Educational assistance Exempt up to $5,250 of benefits each year. Efile 7004 tax extension (See Educational Assistance , later in this section. Efile 7004 tax extension ) Employee discounts Exempt3 up to certain limits. Efile 7004 tax extension (See Employee Discounts , later in this section. Efile 7004 tax extension ) Employee stock options See Employee Stock Options , later in this section. Efile 7004 tax extension Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Efile 7004 tax extension Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Efile 7004 tax extension (Special rules apply to former employees. Efile 7004 tax extension ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Efile 7004 tax extension (See Health Savings Accounts , later in this section. Efile 7004 tax extension ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Efile 7004 tax extension Meals Exempt if furnished on your business premises for your convenience. Efile 7004 tax extension Exempt if de minimis. Efile 7004 tax extension Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Efile 7004 tax extension No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Efile 7004 tax extension (See Transportation (Commuting) Benefits , later in this section. Efile 7004 tax extension ) Exempt if de minimis. Efile 7004 tax extension Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Efile 7004 tax extension Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Efile 7004 tax extension 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Efile 7004 tax extension 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Efile 7004 tax extension 4 Exemption does not apply to certain key employees under a plan that favors those employees. Efile 7004 tax extension 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Efile 7004 tax extension 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Efile 7004 tax extension 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Efile 7004 tax extension Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Efile 7004 tax extension Also, show it in box 12 with code “C. Efile 7004 tax extension ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Efile 7004 tax extension Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Efile 7004 tax extension Contributions to the cost of accident or health insurance including qualified long-term care insurance. Efile 7004 tax extension Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Efile 7004 tax extension Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Efile 7004 tax extension This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Efile 7004 tax extension Payments or reimbursements of medical expenses. Efile 7004 tax extension Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Efile 7004 tax extension The payments must be figured without regard to any period of absence from work. Efile 7004 tax extension Accident or health plan. Efile 7004 tax extension   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Efile 7004 tax extension The plan may be insured or noninsured and does not need to be in writing. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current common-law employee. Efile 7004 tax extension A full-time life insurance agent who is a current statutory employee. Efile 7004 tax extension A retired employee. Efile 7004 tax extension A former employee you maintain coverage for based on the employment relationship. Efile 7004 tax extension A widow or widower of an individual who died while an employee. Efile 7004 tax extension A widow or widower of a retired employee. Efile 7004 tax extension For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension Special rule for certain government plans. Efile 7004 tax extension   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Efile 7004 tax extension See section 105(j) for details. Efile 7004 tax extension Exception for S corporation shareholders. Efile 7004 tax extension   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Efile 7004 tax extension A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Efile 7004 tax extension Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Efile 7004 tax extension Exclusion from wages. Efile 7004 tax extension   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Efile 7004 tax extension Exception for certain long-term care benefits. Efile 7004 tax extension   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Efile 7004 tax extension This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Efile 7004 tax extension However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Efile 7004 tax extension S corporation shareholders. Efile 7004 tax extension   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Efile 7004 tax extension However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Efile 7004 tax extension Exception for highly compensated employees. Efile 7004 tax extension   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Efile 7004 tax extension However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Efile 7004 tax extension   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Efile 7004 tax extension   A highly compensated employee for this exception is any of the following individuals. Efile 7004 tax extension One of the five highest paid officers. Efile 7004 tax extension An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Efile 7004 tax extension An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Efile 7004 tax extension   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Efile 7004 tax extension COBRA premiums. Efile 7004 tax extension   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Efile 7004 tax extension The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Efile 7004 tax extension Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Efile 7004 tax extension The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. Efile 7004 tax extension The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current employee. Efile 7004 tax extension A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension Exception for S corporation shareholders. Efile 7004 tax extension   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Efile 7004 tax extension A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Efile 7004 tax extension Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Efile 7004 tax extension Exclusion from wages. Efile 7004 tax extension   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Efile 7004 tax extension The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Efile 7004 tax extension See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Efile 7004 tax extension    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Efile 7004 tax extension   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. Efile 7004 tax extension The part of the cost that is more than your allowable deduction (up to the value of the awards). Efile 7004 tax extension The amount by which the value of the awards exceeds your allowable deduction. Efile 7004 tax extension Exclude the remaining value of the awards from the employee's wages. Efile 7004 tax extension Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Efile 7004 tax extension It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Efile 7004 tax extension To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Efile 7004 tax extension It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Efile 7004 tax extension A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Efile 7004 tax extension You give reasonable notice of the plan to eligible employees. Efile 7004 tax extension Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Efile 7004 tax extension For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Efile 7004 tax extension The employee was a 5% owner at any time during the year or the preceding year. Efile 7004 tax extension The employee received more than $115,000 in pay for the preceding year. Efile 7004 tax extension You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Efile 7004 tax extension You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Efile 7004 tax extension However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Efile 7004 tax extension For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Efile 7004 tax extension You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Efile 7004 tax extension Use code “T” to identify this amount. Efile 7004 tax extension Exception for S corporation shareholders. Efile 7004 tax extension   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Efile 7004 tax extension A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Efile 7004 tax extension Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. Efile 7004 tax extension Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. Efile 7004 tax extension For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. Efile 7004 tax extension On-premises facility. Efile 7004 tax extension   The athletic facility must be located on premises you own or lease. Efile 7004 tax extension It does not have to be located on your business premises. Efile 7004 tax extension However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current employee. Efile 7004 tax extension A former employee who retired or left on disability. Efile 7004 tax extension A widow or widower of an individual who died while an employee. Efile 7004 tax extension A widow or widower of a former employee who retired or left on disability. Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension A partner who performs services for a partnership. Efile 7004 tax extension De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Efile 7004 tax extension A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Efile 7004 tax extension Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Efile 7004 tax extension Examples of de minimis benefits include the following. Efile 7004 tax extension Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Efile 7004 tax extension See Employer-Provided Cell Phones , later in this section, for details. Efile 7004 tax extension Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Efile 7004 tax extension Holiday gifts, other than cash, with a low fair market value. Efile 7004 tax extension Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Efile 7004 tax extension Meals. Efile 7004 tax extension See Meals , later in this section, for details. Efile 7004 tax extension Occasional parties or picnics for employees and their guests. Efile 7004 tax extension Occasional tickets for theater or sporting events. Efile 7004 tax extension Transportation fare. Efile 7004 tax extension See Transportation (Commuting) Benefits , later in this section, for details. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat any recipient of a de minimis benefit as an employee. Efile 7004 tax extension Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Efile 7004 tax extension The services must be for a qualifying person's care and must be provided to allow the employee to work. Efile 7004 tax extension These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Efile 7004 tax extension For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current employee. Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension Yourself (if you are a sole proprietor). Efile 7004 tax extension A partner who performs services for a partnership. Efile 7004 tax extension Exclusion from wages. Efile 7004 tax extension   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Efile 7004 tax extension   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Efile 7004 tax extension This limit is reduced to $2,500 for married employees filing separate returns. Efile 7004 tax extension   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Efile 7004 tax extension Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Efile 7004 tax extension For more information on the earned income limit, see Publication 503. Efile 7004 tax extension Exception for highly compensated employees. Efile 7004 tax extension   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Efile 7004 tax extension   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Efile 7004 tax extension The employee was a 5% owner at any time during the year or the preceding year. Efile 7004 tax extension The employee received more than $115,000 in pay for the preceding year. Efile 7004 tax extension You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Efile 7004 tax extension Form W-2. Efile 7004 tax extension   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Efile 7004 tax extension Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Efile 7004 tax extension Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Efile 7004 tax extension Example. Efile 7004 tax extension   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Efile 7004 tax extension In addition, it provides occasional on-site dependent care to its employees at no cost. Efile 7004 tax extension Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Efile 7004 tax extension In addition, Emily used the on-site dependent care several times. Efile 7004 tax extension The fair market value of the on-site care was $700. Efile 7004 tax extension Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Efile 7004 tax extension Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Efile 7004 tax extension Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Efile 7004 tax extension The exclusion also applies to graduate level courses. Efile 7004 tax extension Educational assistance means amounts you pay or incur for your employees' education expenses. Efile 7004 tax extension These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Efile 7004 tax extension However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Efile 7004 tax extension Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Efile 7004 tax extension Nor do they include the cost of lodging, meals, or transportation. Efile 7004 tax extension Educational assistance program. Efile 7004 tax extension   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Efile 7004 tax extension The program qualifies only if all of the following tests are met. Efile 7004 tax extension The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Efile 7004 tax extension To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Efile 7004 tax extension The program does not provide more than 5% of its benefits during the year for shareholders or owners. Efile 7004 tax extension A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Efile 7004 tax extension The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Efile 7004 tax extension You give reasonable notice of the program to eligible employees. Efile 7004 tax extension Your program can cover former employees if their employment is the reason for the coverage. Efile 7004 tax extension   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Efile 7004 tax extension The employee was a 5% owner at any time during the year or the preceding year. Efile 7004 tax extension The employee received more than $115,000 in pay for the preceding year. Efile 7004 tax extension You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current employee. Efile 7004 tax extension A former employee who retired, left on disability, or was laid off. Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension Yourself (if you are a sole proprietor). Efile 7004 tax extension A partner who performs services for a partnership. Efile 7004 tax extension Exclusion from wages. Efile 7004 tax extension   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Efile 7004 tax extension Assistance over $5,250. Efile 7004 tax extension   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Efile 7004 tax extension Working condition benefits may be excluded from wages. Efile 7004 tax extension Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Efile 7004 tax extension See Working Condition Benefits , later, in this section. Efile 7004 tax extension Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Efile 7004 tax extension However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current employee. Efile 7004 tax extension A former employee who retired or left on disability. Efile 7004 tax extension A widow or widower of an individual who died while an employee. Efile 7004 tax extension A widow or widower of an employee who retired or left on disability. Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Efile 7004 tax extension A partner who performs services for a partnership. Efile 7004 tax extension Exclusion from wages. Efile 7004 tax extension   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Efile 7004 tax extension For a discount on services, 20% of the price you charge nonemployee customers for the service. Efile 7004 tax extension For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Efile 7004 tax extension   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Efile 7004 tax extension To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Efile 7004 tax extension Exception for highly compensated employees. Efile 7004 tax extension   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. Efile 7004 tax extension All of your employees. Efile 7004 tax extension A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Efile 7004 tax extension   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Efile 7004 tax extension The employee was a 5% owner at any time during the year or the preceding year. Efile 7004 tax extension The employee received more than $115,000 in pay for the preceding year. Efile 7004 tax extension You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Efile 7004 tax extension Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Efile 7004 tax extension Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Efile 7004 tax extension The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Efile 7004 tax extension Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. Efile 7004 tax extension The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Efile 7004 tax extension However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. Efile 7004 tax extension An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. Efile 7004 tax extension ” See Regulations section 1. Efile 7004 tax extension 83-7. Efile 7004 tax extension An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. Efile 7004 tax extension The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Efile 7004 tax extension See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Efile 7004 tax extension You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Efile 7004 tax extension irs. Efile 7004 tax extension gov/pub/irs-irbs/irb02-19. Efile 7004 tax extension pdf. Efile 7004 tax extension See Revenue Ruling 2004-60, 2004-24 I. Efile 7004 tax extension R. Efile 7004 tax extension B. Efile 7004 tax extension 1051, available at www. Efile 7004 tax extension irs. Efile 7004 tax extension gov/irb/2004-24_IRB/ar13. Efile 7004 tax extension html. Efile 7004 tax extension For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Efile 7004 tax extension Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Efile 7004 tax extension Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Efile 7004 tax extension For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Efile 7004 tax extension Noncompensatory business purposes. Efile 7004 tax extension   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Efile 7004 tax extension Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Efile 7004 tax extension Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Efile 7004 tax extension   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Efile 7004 tax extension Additional information. Efile 7004 tax extension   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Efile 7004 tax extension R. Efile 7004 tax extension B. Efile 7004 tax extension 407, available at  www. Efile 7004 tax extension irs. Efile 7004 tax extension gov/irb/2011-38_IRB/ar07. Efile 7004 tax extension html. Efile 7004 tax extension Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Efile 7004 tax extension It provides a general death benefit that is not included in income. Efile 7004 tax extension You provide it to a group of employees. Efile 7004 tax extension See The 10-employee rule , later. Efile 7004 tax extension It provides an amount of insurance to each employee based on a formula that prevents individual selection. Efile 7004 tax extension This formula must use factors such as the employee's age, years of service, pay, or position. Efile 7004 tax extension You provide it under a policy you directly or indirectly carry. Efile 7004 tax extension Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Efile 7004 tax extension Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Efile 7004 tax extension Group-term life insurance does not include the following insurance. Efile 7004 tax extension Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Efile 7004 tax extension Life insurance on the life of your employee's spouse or dependent. Efile 7004 tax extension However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Efile 7004 tax extension See De Minimis (Minimal) Benefits , earlier in this section. Efile 7004 tax extension Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Efile 7004 tax extension See Regulations section 1. Efile 7004 tax extension 79-1 for details. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat the following individuals as employees. Efile 7004 tax extension A current common-law employee. Efile 7004 tax extension A full-time life insurance agent who is a current statutory employee. Efile 7004 tax extension An individual who was formerly your employee under (1) or (2). Efile 7004 tax extension A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. Efile 7004 tax extension Exception for S corporation shareholders. Efile 7004 tax extension   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Efile 7004 tax extension A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Efile 7004 tax extension Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Efile 7004 tax extension The 10-employee rule. Efile 7004 tax extension   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Efile 7004 tax extension   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Efile 7004 tax extension For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Efile 7004 tax extension However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Efile 7004 tax extension A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Efile 7004 tax extension Exceptions. Efile 7004 tax extension   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Efile 7004 tax extension   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Efile 7004 tax extension If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Efile 7004 tax extension You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Efile 7004 tax extension You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Efile 7004 tax extension See Regulations section 1. Efile 7004 tax extension 79-1 for details. Efile 7004 tax extension   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Efile 7004 tax extension You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Efile 7004 tax extension The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Efile 7004 tax extension Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Efile 7004 tax extension   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Efile 7004 tax extension They were 65 or older. Efile 7004 tax extension They customarily work 20 hours or less a week or 5 months or less in a calendar year. Efile 7004 tax extension They have not been employed for the waiting period given in the policy. Efile 7004 tax extension This waiting period cannot be more than 6 months. Efile 7004 tax extension Exclusion from wages. Efile 7004 tax extension   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Efile 7004 tax extension You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Efile 7004 tax extension In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Efile 7004 tax extension Coverage over the limit. Efile 7004 tax extension   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Efile 7004 tax extension Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Efile 7004 tax extension Also, show it in box 12 with code “C. Efile 7004 tax extension ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Efile 7004 tax extension   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Efile 7004 tax extension For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Efile 7004 tax extension You must prorate the cost from the table if less than a full month of coverage is involved. Efile 7004 tax extension Table 2-2. Efile 7004 tax extension Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Efile 7004 tax extension 05 25 through 29 . Efile 7004 tax extension 06 30 through 34 . Efile 7004 tax extension 08 35 through 39 . Efile 7004 tax extension 09 40 through 44 . Efile 7004 tax extension 10 45 through 49 . Efile 7004 tax extension 15 50 through 54 . Efile 7004 tax extension 23 55 through 59 . Efile 7004 tax extension 43 60 through 64 . Efile 7004 tax extension 66 65 through 69 1. Efile 7004 tax extension 27 70 and older 2. Efile 7004 tax extension 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Efile 7004 tax extension Example. Efile 7004 tax extension Tom's employer provides him with group-term life insurance coverage of $200,000. Efile 7004 tax extension Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Efile 7004 tax extension Tom's employer must include $170 in his wages. Efile 7004 tax extension The $200,000 of insurance coverage is reduced by $50,000. Efile 7004 tax extension The yearly cost of $150,000 of coverage is $270 ($. Efile 7004 tax extension 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Efile 7004 tax extension The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Efile 7004 tax extension The employer also enters $170 in box 12 with code “C. Efile 7004 tax extension ” Coverage for dependents. Efile 7004 tax extension   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Efile 7004 tax extension If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Efile 7004 tax extension The cost of the insurance is determined by using Table 2-2. Efile 7004 tax extension Former employees. Efile 7004 tax extension   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Efile 7004 tax extension You are not required to collect those taxes. Efile 7004 tax extension Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Efile 7004 tax extension Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Efile 7004 tax extension ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Efile 7004 tax extension Exception for key employees. Efile 7004 tax extension   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Efile 7004 tax extension This exception generally does not apply to church plans. Efile 7004 tax extension When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Efile 7004 tax extension Include the cost in boxes 1, 3, and 5 of Form W-2. Efile 7004 tax extension However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Efile 7004 tax extension   For this purpose, the cost of the insurance is the greater of the following amounts. Efile 7004 tax extension The premiums you pay for the employee's insurance. Efile 7004 tax extension See Regulations section 1. Efile 7004 tax extension 79-4T(Q&A 6) for more information. Efile 7004 tax extension The cost you figure using Table 2-2. Efile 7004 tax extension   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Efile 7004 tax extension See section 416(i) of the Internal Revenue Code for more information. Efile 7004 tax extension An officer having annual pay of more than $170,000. Efile 7004 tax extension An individual who for 2014 was either of the following. Efile 7004 tax extension A 5% owner of your business. Efile 7004 tax extension A 1% owner of your business whose annual pay was more than $150,000. Efile 7004 tax extension   A former employee who was a key employee upon retirement or separation from service is also a key employee. Efile 7004 tax extension   Your plan does not favor key employees as to participation if at least one of the following is true. Efile 7004 tax extension It benefits at least 70% of your employees. Efile 7004 tax extension At least 85% of the participating employees are not key employees. Efile 7004 tax extension It benefits employees who qualify under a set of rules you set up that do not favor key employees. Efile 7004 tax extension   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Efile 7004 tax extension   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Efile 7004 tax extension S. Efile 7004 tax extension source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Efile 7004 tax extension   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Efile 7004 tax extension Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Efile 7004 tax extension S corporation shareholders. Efile 7004 tax extension   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Efile 7004 tax extension When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Efile 7004 tax extension Include the cost in boxes 1, 3, and 5 of Form W-2. Efile 7004 tax extension However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Efile 7004 tax extension Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Efile 7004 tax extension Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Efile 7004 tax extension Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Efile 7004 tax extension The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Efile 7004 tax extension For more information about HSAs, visit the Department of Treasury's website at www. Efile 7004 tax extension treasury. Efile 7004 tax extension gov and enter “HSA” in the search box. Efile 7004 tax extension Eligibility. Efile 7004 tax extension   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Efile 7004 tax extension For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Efile 7004 tax extension   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Efile 7004 tax extension Exceptions. Efile 7004 tax extension   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Efile 7004 tax extension Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Efile 7004 tax extension However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Efile 7004 tax extension For more information, see Other employee health plans in Publication 969. Efile 7004 tax extension Employer contributions. Efile 7004 tax extension   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Efile 7004 tax extension For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Efile 7004 tax extension   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Efile 7004 tax extension For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Efile 7004 tax extension No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Efile 7004 tax extension Nondiscrimination rules. Efile 7004 tax extension    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Efile 7004 tax extension Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Efile 7004 tax extension   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Efile 7004 tax extension 4980G-4. Efile 7004 tax extension Exception. Efile 7004 tax extension   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Efile 7004 tax extension A highly compensated employee for 2014 is an employee who meets either of the following tests. Efile 7004 tax extension The employee was a 5% owner at any time during the year or the preceding year. Efile 7004 tax extension The employee received more than $115,000 in pay for the preceding year. Efile 7004 tax extension You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Efile 7004 tax extension Partnerships and S corporations. Efile 7004 tax extension   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Efile 7004 tax extension Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Efile 7004 tax extension Cafeteria plans. Efile 7004 tax extension   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Efile 7004 tax extension However, cafeteria plan nondiscrimination rules still apply. Efile 7004 tax extension For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Efile 7004 tax extension Contributions that favor lower-paid employees are not prohibited. Efile 7004 tax extension Reporting requirements. Efile 7004 tax extension   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Efile 7004 tax extension ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Efile 7004 tax extension Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Efile 7004 tax extension It is furnished on your business premises. Efile 7004 tax extension It is furnished for your convenience. Efile 7004 tax extension The employee must accept it as a condition of employment. Efile 7004 tax extension Different tests may apply to lodging furnished by educational institutions. Efile 7004 tax extension See section 119(d) of the Internal Revenue Code for details. Efile 7004 tax extension The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Efile 7004 tax extension On your business premises. Efile 7004 tax extension   For this exclusion, your business premises is generally your employee's place of work. Efile 7004 tax extension For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Efile 7004 tax extension For your convenience. Efile 7004 tax extension   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Efile 7004 tax extension You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Efile 7004 tax extension This is true even if a law or an employment contract provides that the lodging is furnished as pay. Efile 7004 tax extension However, a written statement that the lodging is furnished for your convenience is not sufficient. Efile 7004 tax extension Condition of employment. Efile 7004 tax extension   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Efile 7004 tax extension Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Efile 7004 tax extension   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Efile 7004 tax extension Example. Efile 7004 tax extension A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Efile 7004 tax extension If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Efile 7004 tax extension S corporation shareholders. Efile 7004 tax extension   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Efile 7004 tax extension A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Efile 7004 tax extension Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Efile 7004 tax extension Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Efile 7004 tax extension De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Efile 7004 tax extension The exclusion applies, for example, to the following items. Efile 7004 tax extension Coffee, doughnuts, or soft drinks. Efile 7004 tax extension Occasional meals or meal money provided to enable an employee to work overtime. Efile 7004 tax extension However, the exclusion does not apply to meal money figured on the basis of hours worked. Efile 7004 tax extension Occasional parties or picnics for employees and their guests. Efile 7004 tax extension This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Efile 7004 tax extension For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Efile 7004 tax extension If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Efile 7004 tax extension The 50% limit on deductions for the cost of meals does not apply. Efile 7004 tax extension The deduction limit on meals is discussed in chapter 2 of Publication 535. Efile 7004 tax extension Employee. Efile 7004 tax extension   For this exclusion, treat any recipient of a de minimis meal as