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File 2007 Tax Return

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File 2007 Tax Return

File 2007 tax return 9. File 2007 tax return   Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. File 2007 tax return Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. File 2007 tax return Amount to report as ordinary income. File 2007 tax return Applicable percentage. File 2007 tax return Amount to report as ordinary income. File 2007 tax return Applicable percentage. File 2007 tax return Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. File 2007 tax return When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. File 2007 tax return Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. File 2007 tax return Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. File 2007 tax return Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. File 2007 tax return Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. File 2007 tax return Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). File 2007 tax return Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. File 2007 tax return Table 9-1. File 2007 tax return Where to First Report Certain Items on Form 4797 Type of property Held 1 year  or less Held more than  1 year 1 Depreciable trade or business property:       a Sold or exchanged at a gain Part II Part III (1245, 1250)   b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted:       a Sold at a gain Part II Part III (1252)   b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 24 mos. File 2007 tax return Held 24 mos. File 2007 tax return  or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 12 mos. File 2007 tax return Held 12 mos. File 2007 tax return   or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). File 2007 tax return Do not take that gain into account as section 1231 gain. File 2007 tax return Section 1231 transactions. File 2007 tax return   Gain or loss on the following transactions is subject to section 1231 treatment. File 2007 tax return Sale or exchange of cattle and horses. File 2007 tax return The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. File 2007 tax return Sale or exchange of other livestock. File 2007 tax return This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. File 2007 tax return Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. File 2007 tax return Other livestock does not include poultry. File 2007 tax return Sale or exchange of depreciable personal property. File 2007 tax return This property must be used in your business and held longer than 1 year. File 2007 tax return Generally, property held for the production of rents or royalties is considered to be used in a trade or business. File 2007 tax return Examples of depreciable personal property include farm machinery and trucks. File 2007 tax return It also includes amortizable section 197 intangibles. File 2007 tax return Sale or exchange of real estate. File 2007 tax return This property must be used in your business and held longer than 1 year. File 2007 tax return Examples are your farm or ranch (including barns and sheds). File 2007 tax return Sale or exchange of unharvested crops. File 2007 tax return The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. File 2007 tax return You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). File 2007 tax return Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. File 2007 tax return Distributive share of partnership gains and losses. File 2007 tax return Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). File 2007 tax return Cutting or disposal of timber. File 2007 tax return Special rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange, or you enter into a cutting contract, as described in chapter 8 under Timber . File 2007 tax return Condemnation. File 2007 tax return The condemned property (defined in chapter 11) must have been held longer than 1 year. File 2007 tax return It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. File 2007 tax return It cannot be property held for personal use. File 2007 tax return Casualty or theft. File 2007 tax return The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). File 2007 tax return You must have held the property longer than 1 year. File 2007 tax return However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. File 2007 tax return Section 1231 does not apply to personal casualty gains and losses. File 2007 tax return See chapter 11 for information on how to treat those gains and losses. File 2007 tax return If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. File 2007 tax return See Table 9-1. File 2007 tax return Property for sale to customers. File 2007 tax return   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. File 2007 tax return If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. File 2007 tax return Treatment as ordinary or capital. File 2007 tax return   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. File 2007 tax return If you have a net section 1231 loss, it is an ordinary loss. File 2007 tax return If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. File 2007 tax return The rest, if any, is long-term capital gain. File 2007 tax return Nonrecaptured section 1231 losses. File 2007 tax return   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. File 2007 tax return These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. File 2007 tax return Example. File 2007 tax return In 2013, Ben has a $2,000 net section 1231 gain. File 2007 tax return To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. File 2007 tax return From 2008 through 2012 he had the following section 1231 gains and losses. File 2007 tax return Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800   Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. File 2007 tax return 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. File 2007 tax return Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. File 2007 tax return To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. File 2007 tax return For more information, see chapter 3 of Publication 544. File 2007 tax return Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. File 2007 tax return Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. File 2007 tax return See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. File 2007 tax return Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. File 2007 tax return Personal property (either tangible or intangible). File 2007 tax return Other tangible property (except buildings and their structural components) used as any of the following. File 2007 tax return See Buildings and structural components below. File 2007 tax return An integral part of manufacturing, production, or extraction, or of furnishing certain services. File 2007 tax return A research facility in any of the activities in (a). File 2007 tax return A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). File 2007 tax return That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. File 2007 tax return Amortization of certified pollution control facilities. File 2007 tax return The section 179 expense deduction. File 2007 tax return Deduction for clean-fuel vehicles and certain refueling property. File 2007 tax return Expenditures to remove architectural and transportation barriers to the handicapped and elderly. File 2007 tax return Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. File 2007 tax return Single purpose agricultural (livestock) or horticultural structures. File 2007 tax return Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. File 2007 tax return Buildings and structural components. File 2007 tax return   Section 1245 property does not include buildings and structural components. File 2007 tax return The term building includes a house, barn, warehouse, or garage. File 2007 tax return The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. File 2007 tax return   Do not treat a structure that is essentially machinery or equipment as a building or structural component. File 2007 tax return Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. File 2007 tax return   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. File 2007 tax return Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. File 2007 tax return Facility for bulk storage of fungible commodities. File 2007 tax return   This is a facility used mainly for the bulk storage of fungible commodities. File 2007 tax return Bulk storage means storage of a commodity in a large mass before it is used. File 2007 tax return For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. File 2007 tax return To be fungible, a commodity must be such that one part may be used in place of another. File 2007 tax return Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. File 2007 tax return The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. File 2007 tax return The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). File 2007 tax return For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. File 2007 tax return For details, see chapter 3 of Publication 544. File 2007 tax return Use Part III of Form 4797 to figure the ordinary income part of the gain. File 2007 tax return Depreciation claimed on other property or claimed by other taxpayers. File 2007 tax return   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. File 2007 tax return Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. File 2007 tax return For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. File 2007 tax return Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). File 2007 tax return Example. File 2007 tax return Jeff Free paid $120,000 for a tractor in 2012. File 2007 tax return On February 23, 2013, he traded it for a chopper and paid an additional $30,000. File 2007 tax return To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. File 2007 tax return Jeff can also depreciate the additional $30,000 for the chopper. File 2007 tax return Depreciation and amortization. File 2007 tax return   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. File 2007 tax return See Depreciation Recapture in chapter 3 of Publication 544 for more details. File 2007 tax return Ordinary depreciation deductions. File 2007 tax return Section 179 deduction (see chapter 7). File 2007 tax return Any special depreciation allowance. File 2007 tax return Amortization deductions for all the following costs. File 2007 tax return Acquiring a lease. File 2007 tax return Lessee improvements. File 2007 tax return Pollution control facilities. File 2007 tax return Reforestation expenses. File 2007 tax return Section 197 intangibles. File 2007 tax return Qualified disaster expenses. File 2007 tax return Franchises, trademarks, and trade names acquired before August 11, 1993. File 2007 tax return Example. File 2007 tax return You file your returns on a calendar year basis. File 2007 tax return In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. File 2007 tax return You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. File 2007 tax return You did not claim the section 179 expense deduction for the truck. File 2007 tax return You sold it in May 2013 for $7,000. File 2007 tax return The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). File 2007 tax return Figure the gain treated as ordinary income as follows. File 2007 tax return 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943   4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. File 2007 tax return   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. File 2007 tax return If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. File 2007 tax return If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. File 2007 tax return This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. File 2007 tax return Disposition of plants and animals. File 2007 tax return   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. File 2007 tax return If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. File 2007 tax return For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. File 2007 tax return For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. File 2007 tax return You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. File 2007 tax return Example. File 2007 tax return Janet Maple sold her apple orchard in 2013 for $80,000. File 2007 tax return Her adjusted basis at the time of sale was $60,000. File 2007 tax return She bought the orchard in 2006, but the trees did not produce a crop until 2009. File 2007 tax return Her pre-productive expenses were $6,000. File 2007 tax return She elected not to use the uniform capitalization rules. File 2007 tax return Janet must treat $6,000 of the gain as ordinary income. File 2007 tax return Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. File 2007 tax return It includes buildings and structural components that are not section 1245 property (discussed earlier). File 2007 tax return It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. File 2007 tax return A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. File 2007 tax return Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. File 2007 tax return To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. File 2007 tax return You will not have additional depreciation if any of the following apply to the property disposed of. File 2007 tax return You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. File 2007 tax return You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. File 2007 tax return The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. File 2007 tax return These properties are depreciated using the straight line method. File 2007 tax return Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. File 2007 tax return This applies even if no payments are received in that year. File 2007 tax return If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. File 2007 tax return For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. File 2007 tax return If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. File 2007 tax return To do this, allocate the selling price and the payments you receive in the year of sale to each asset. File 2007 tax return Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. File 2007 tax return For more information on installment sales, see chapter 10. File 2007 tax return Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. File 2007 tax return By gift. File 2007 tax return At death. File 2007 tax return In like-kind exchanges. File 2007 tax return In involuntary conversions. File 2007 tax return Publication 544 also explains how to handle a single transaction involving multiple properties. File 2007 tax return Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. File 2007 tax return Deductions for soil and water conservation expenditures (section 1252 property). File 2007 tax return Exclusions from income for certain cost sharing payments (section 1255 property). File 2007 tax return Section 1252 property. File 2007 tax return   If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. File 2007 tax return Exceptions. File 2007 tax return   Do not treat gain on the following transactions as gain on section 1252 property. File 2007 tax return Disposition of farmland by gift. File 2007 tax return Transfer of farm property at death (except for income in respect of a decedent). File 2007 tax return For more information, see Regulations section 1. File 2007 tax return 1252-2. File 2007 tax return Amount to report as ordinary income. File 2007 tax return   You report as ordinary income the lesser of the following amounts. File 2007 tax return Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). File 2007 tax return The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. File 2007 tax return Applicable percentage. File 2007 tax return   The applicable percentage is based on the length of time you held the land. File 2007 tax return If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. File 2007 tax return If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. File 2007 tax return If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. File 2007 tax return Example. File 2007 tax return You acquired farmland on January 19, 2005. File 2007 tax return On October 3, 2013, you sold the land at a $30,000 gain. File 2007 tax return Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. File 2007 tax return The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. File 2007 tax return You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. File 2007 tax return Section 1255 property. File 2007 tax return   If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. File 2007 tax return If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. File 2007 tax return Amount to report as ordinary income. File 2007 tax return   You report as ordinary income the lesser of the following amounts. File 2007 tax return The applicable percentage of the total excluded cost-sharing payments. File 2007 tax return The gain on the disposition of the property. File 2007 tax return You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. File 2007 tax return However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. File 2007 tax return Applicable percentage. File 2007 tax return   The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. File 2007 tax return If the property is held less than 10 years after you receive the payments, the percentage is 100%. File 2007 tax return After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. File 2007 tax return Form 4797, Part III. File 2007 tax return   Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. File 2007 tax return Prev  Up  Next   Home   More Online Publications

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The File 2007 Tax Return

File 2007 tax return 1. File 2007 tax return   403(b) Plan Basics Table of Contents What Is a 403(b) Plan? What Are the Benefits of Contributing to a 403(b) Plan?Excluded. File 2007 tax return Deducted. File 2007 tax return Who Can Participate in a 403(b) Plan?Ministers. File 2007 tax return Who Can Set Up a 403(b) Account? How Can Contributions Be Made to My 403(b) Account? Do I Report Contributions on My Tax Return? How Much Can Be Contributed to My 403(b) Account? This chapter introduces you to 403(b) plans and accounts. File 2007 tax return Specifically, the chapter answers the following questions. File 2007 tax return What is a 403(b) plan? What are the benefits of contributing to a 403(b) plan? Who can participate in a 403(b) plan? Who can set up a 403(b) account? How can contributions be made to my 403(b) account? Do I report contributions on my tax return? How much can be contributed to my 403(b) account? What Is a 403(b) Plan? A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. File 2007 tax return Individual accounts in a 403(b) plan can be any of the following types. File 2007 tax return An annuity contract, which is a contract provided through an insurance company, A custodial account, which is an account invested in mutual funds, or A retirement income account set up for church employees. File 2007 tax return Generally, retirement income accounts can invest in either annuities or mutual funds. File 2007 tax return We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified. File 2007 tax return What Are the Benefits of Contributing to a 403(b) Plan?  There are three benefits to contributing to a 403(b) plan. File 2007 tax return The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. File 2007 tax return Allowable contributions to a 403(b) plan are either excluded or deducted from your income. File 2007 tax return However, if your contributions are made to a Roth contribution program, this benefit does not apply. File 2007 tax return Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free. File 2007 tax return Note. File 2007 tax return Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. File 2007 tax return See chapter 4, Limit on Elective Deferrals , for more information. File 2007 tax return The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. File 2007 tax return Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. File 2007 tax return Otherwise, they are taxed when you withdraw them. File 2007 tax return The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. File 2007 tax return See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) . File 2007 tax return Excluded. File 2007 tax return   If an amount is excluded from your income, it is not included in your total wages on your Form W-2. File 2007 tax return This means that you do not report the excluded amount on your tax return. File 2007 tax return Deducted. File 2007 tax return   If an amount is deducted from your income, it is included with your other wages on your Form W-2. File 2007 tax return You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax. File 2007 tax return Who Can Participate in a 403(b) Plan? Any eligible employee can participate in a 403(b) plan. File 2007 tax return Eligible employees. File 2007 tax return   The following employees are eligible to participate in a 403(b) plan. File 2007 tax return Employees of tax-exempt organizations established under section 501(c)(3). File 2007 tax return These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations. File 2007 tax return Employees of public school systems who are involved in the day-to-day operations of a school. File 2007 tax return Employees of cooperative hospital service organizations. File 2007 tax return Civilian faculty and staff of the Uniformed Services University of the Health Sciences. File 2007 tax return Employees of public school systems organized by Indian tribal governments. File 2007 tax return Certain ministers (explained next). File 2007 tax return Ministers. File 2007 tax return   The following ministers are eligible employees for whom a 403(b) account can be established. File 2007 tax return Ministers employed by section 501(c)(3) organizations. File 2007 tax return Self-employed ministers. File 2007 tax return A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer. File 2007 tax return Ministers (chaplains) who meet both of the following requirements. File 2007 tax return They are employed by organizations that are not section 501(c)(3) organizations. File 2007 tax return They function as ministers in their day-to-day professional responsibilities with their employers. File 2007 tax return   Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above. File 2007 tax return Example. File 2007 tax return A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers are not section 501(c)(3) organizations and they are employed as ministers. File 2007 tax return Who Can Set Up a 403(b) Account? You cannot set up your own 403(b) account. File 2007 tax return Only employers can set up 403(b) accounts. File 2007 tax return A self-employed minister cannot set up a 403(b) account for his or her benefit. File 2007 tax return If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit. File 2007 tax return How Can Contributions Be Made to My 403(b) Account? Generally, only your employer can make contributions to your 403(b) account. File 2007 tax return However, some plans will allow you to make after-tax contributions (defined below). File 2007 tax return The following types of contributions can be made to 403(b) accounts. File 2007 tax return Elective deferrals . File 2007 tax return These are contributions made under a salary reduction agreement. File 2007 tax return This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. File 2007 tax return Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. File 2007 tax return If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free. File 2007 tax return Nonelective contributions . File 2007 tax return These are employer contributions that are not made under a salary reduction agreement. File 2007 tax return Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. File 2007 tax return You do not pay income tax on these contributions until you withdraw them from the account. File 2007 tax return After-tax contributions . File 2007 tax return These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. File 2007 tax return A salary payment on which income tax has been withheld is a source of these contributions. File 2007 tax return If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return. File 2007 tax return A combination of any of the three contribution types listed above. File 2007 tax return Self-employed minister. File 2007 tax return   If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit. File 2007 tax return Do I Report Contributions on My Tax Return? Generally, you do not report contributions to your 403(b) account (except Roth contributions) on your tax return. File 2007 tax return Your employer will report contributions on your 2013 Form W-2. File 2007 tax return Elective deferrals will be shown in box 12 and the Retirement plan box will be checked in box 13. File 2007 tax return If you are a self-employed minister or chaplain, see the discussions next. File 2007 tax return Self-employed ministers. File 2007 tax return   If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. File 2007 tax return Deduct your contributions on line 28 of the 2013 Form 1040. File 2007 tax return Chaplains. File 2007 tax return   If you are a chaplain and your employer does not exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return. File 2007 tax return    However, if your employer has agreed to exclude the contributions from your earned income, you will not be allowed a deduction on your tax return. File 2007 tax return   If you can take a deduction, include your contributions on line 36 of the 2013 Form 1040. File 2007 tax return Enter the amount of your deduction and write “403(b)” on the dotted line next to line 36. File 2007 tax return How Much Can Be Contributed to My 403(b) Account? There are limits on the amount of contributions that can be made to your 403(b) account each year. File 2007 tax return If contributions made to your 403(b) account are more than these contribution limits, penalties may apply. File 2007 tax return Chapters 2 through 6 provide information on how to determine the amount that can be contributed to your 403(b) account. File 2007 tax return Worksheets are provided in Chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year. File 2007 tax return Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected. File 2007 tax return Prev  Up  Next   Home   More Online Publications