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Free file state federal taxes Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Free file state federal taxes Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Free file state federal taxes An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Free file state federal taxes 7701-3. Free file state federal taxes The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Free file state federal taxes Check your state's requirements and the federal tax regulations for further information. Free file state federal taxes Classification of an LLC Default classification rules. Free file state federal taxes   An LLC with at least two members is classified as a partnership for federal income tax purposes. Free file state federal taxes An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Free file state federal taxes Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Free file state federal taxes Elected classification. Free file state federal taxes   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Free file state federal taxes After an LLC has determined its federal tax classification, it can later elect to change that classification. Free file state federal taxes For details, see Subsequent Elections, later. Free file state federal taxes LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Free file state federal taxes S. Free file state federal taxes Return of Partnership Income. Free file state federal taxes Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Free file state federal taxes For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Free file state federal taxes For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Free file state federal taxes 469-5T(e)). Free file state federal taxes See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Free file state federal taxes Member manager. Free file state federal taxes   Only a member manager of an LLC can sign the partnership tax return. Free file state federal taxes And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Free file state federal taxes A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Free file state federal taxes If there are no elected or designated member managers, each owner is treated as a member manager. Free file state federal taxes Change in default classification. Free file state federal taxes   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Free file state federal taxes 7701-3(f)(2). Free file state federal taxes However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Free file state federal taxes   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Free file state federal taxes If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Free file state federal taxes Example 1. Free file state federal taxes Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Free file state federal taxes Each holds an equal membership interest. Free file state federal taxes The LLC does not hold any unrealized receivables or substantially appreciated inventory. Free file state federal taxes Ethel sells her entire interest in the LLC to Francis for $10,000. Free file state federal taxes After the sale, the business is continued by the LLC, which is owned solely by Francis. Free file state federal taxes No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Free file state federal taxes The partnership terminates when Francis buys Ethel's entire interest. Free file state federal taxes Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Free file state federal taxes For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Free file state federal taxes Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Free file state federal taxes Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Free file state federal taxes Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Free file state federal taxes See Partnership Distributions in Publication 541. Free file state federal taxes Example 2. Free file state federal taxes George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Free file state federal taxes Each holds an equal membership interest. Free file state federal taxes The LLC does not hold any unrealized receivables or substantially appreciated inventory. Free file state federal taxes George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Free file state federal taxes After the sale, the business is continued by the LLC, which is owned solely by Ian. Free file state federal taxes No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Free file state federal taxes The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Free file state federal taxes George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Free file state federal taxes For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Free file state federal taxes Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Free file state federal taxes   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Free file state federal taxes R. Free file state federal taxes B. Free file state federal taxes 6. Free file state federal taxes You can find Revenue Ruling 99-6 at www. Free file state federal taxes irs. Free file state federal taxes gov/pub/irs-irbs/irb99-06. Free file state federal taxes pdf. Free file state federal taxes LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Free file state federal taxes For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Free file state federal taxes Employment tax and certain excise taxes. Free file state federal taxes   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Free file state federal taxes For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Free file state federal taxes A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Free file state federal taxes See the employment and excise tax returns for more information. Free file state federal taxes Self-employment tax rule for disregarded entity LLCs. Free file state federal taxes   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Free file state federal taxes Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Free file state federal taxes Example 3. Free file state federal taxes LLC is a disregarded entity owned by Irene. Free file state federal taxes LLC has three employees (Kent, Patricia, and Tex) and pays wages. Free file state federal taxes LLC is treated as an entity separate from its owner for purposes of employment taxes. Free file state federal taxes For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Free file state federal taxes In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Free file state federal taxes Irene is self-employed for purposes of the self-employment tax. Free file state federal taxes Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Free file state federal taxes Irene is not an employee of LLC for purposes of employment taxes. Free file state federal taxes Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Free file state federal taxes Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Free file state federal taxes Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Free file state federal taxes Taxpayer identification number. Free file state federal taxes   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Free file state federal taxes This includes all information returns and reporting related to income tax. Free file state federal taxes For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Free file state federal taxes   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Free file state federal taxes An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Free file state federal taxes See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Free file state federal taxes Change in default classification. Free file state federal taxes   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Free file state federal taxes 7701-3(f)(2). Free file state federal taxes However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Free file state federal taxes   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Free file state federal taxes If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Free file state federal taxes Example 4. Free file state federal taxes Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Free file state federal taxes Alain does not contribute any portion of the $5,000 to the LLC. Free file state federal taxes Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Free file state federal taxes The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Free file state federal taxes Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Free file state federal taxes Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Free file state federal taxes Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Free file state federal taxes Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Free file state federal taxes Example 5. Free file state federal taxes Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Free file state federal taxes The LLC uses all of the contributed cash in its business. Free file state federal taxes Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Free file state federal taxes The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Free file state federal taxes Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Free file state federal taxes Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Free file state federal taxes Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Free file state federal taxes   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Free file state federal taxes R. Free file state federal taxes B. Free file state federal taxes 8. Free file state federal taxes You can find Revenue Ruling 99-5 at www. Free file state federal taxes irs. Free file state federal taxes gov/pub/irs-irbs/irb99-06. Free file state federal taxes pdf. Free file state federal taxes LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Free file state federal taxes File Form 8832, Entity Classification Election, to elect classification as a C corporation. Free file state federal taxes File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Free file state federal taxes LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Free file state federal taxes By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Free file state federal taxes If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Free file state federal taxes Example 6. Free file state federal taxes Classification as a corporation without an S election. Free file state federal taxes Wanda and Sylvester are members of an LLC. Free file state federal taxes They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Free file state federal taxes The LLC must file Form 8832. Free file state federal taxes Example 7. Free file state federal taxes Classification as a corporation with an S election. Free file state federal taxes Evelyn and Carol are members of an LLC. Free file state federal taxes They agree that the LLC should be classified as an S corporation. Free file state federal taxes The LLC must file Form 2553 instead of Form 8832. Free file state federal taxes If the LLC is classified as a corporation, it must file a corporation income tax return. Free file state federal taxes If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Free file state federal taxes If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Free file state federal taxes Corporations generally file either: Form 1120, U. Free file state federal taxes S. Free file state federal taxes Corporation Income Tax Return; or Form 1120S, U. Free file state federal taxes S. Free file state federal taxes Income Tax Return for an S Corporation. Free file state federal taxes For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Free file state federal taxes For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Free file state federal taxes S. Free file state federal taxes Income Tax Return for an S Corporation. Free file state federal taxes Subsequent Elections An LLC can elect to change its classification. Free file state federal taxes Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Free file state federal taxes An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Free file state federal taxes For more information and exceptions, see Regulations section 301. Free file state federal taxes 7701-3(c) and the Form 8832 instructions. Free file state federal taxes An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Free file state federal taxes Partnership to corporation. Free file state federal taxes   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Free file state federal taxes   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Free file state federal taxes Corporation to partnership. Free file state federal taxes   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Free file state federal taxes   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Free file state federal taxes Corporation to disregarded entity. Free file state federal taxes   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Free file state federal taxes   For more information, see Distributions to Shareholders in Publication 542. Free file state federal taxes Disregarded entity to corporation. Free file state federal taxes   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Free file state federal taxes   For more information, see Property Exchanged for Stock in Publication 542. Free file state federal taxes How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Free file state federal taxes Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Free file state federal taxes By selecting the method that is best for you, you will have quick and easy access to tax help. Free file state federal taxes Contacting your Taxpayer Advocate. Free file state federal taxes   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Free file state federal taxes   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Free file state federal taxes You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Free file state federal taxes You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Free file state federal taxes For more information, go to www. Free file state federal taxes irs. Free file state federal taxes gov/advocate. Free file state federal taxes Low Income Taxpayer Clinics (LITCs). Free file state federal taxes   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Free file state federal taxes The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Free file state federal taxes Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Free file state federal taxes It is available at www. Free file state federal taxes irs. Free file state federal taxes gov or at your local IRS office. Free file state federal taxes Small business workshops. Free file state federal taxes   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Free file state federal taxes Workshops are sponsored and presented by IRS partners who are federal tax specialists. Free file state federal taxes Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Free file state federal taxes Although most are free, some workshops have fees associated with them. Free file state federal taxes Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Free file state federal taxes   For more information, visit www. Free file state federal taxes irs. Free file state federal taxes gov/businesses/small. Free file state federal taxes Subscribe to e-news for small businesses. Free file state federal taxes   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Free file state federal taxes Visit the website at www. Free file state federal taxes irs. Free file state federal taxes gov/businesses/small and click on “Subscribe to e-News. Free file state federal taxes ” Free tax services. Free file state federal taxes   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Free file state federal taxes It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Free file state federal taxes   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Free file state federal taxes Internet. Free file state federal taxes You can access the IRS website at www. Free file state federal taxes irs. Free file state federal taxes gov 24 hours a day, 7 days a week, to: E-file your return. Free file state federal taxes Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Free file state federal taxes Check the status of your refund. Free file state federal taxes Go to www. Free file state federal taxes irs. Free file state federal taxes gov and click on Where's My Refund. Free file state federal taxes Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Free file state federal taxes If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Free file state federal taxes Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free file state federal taxes Download forms, instructions, and publications. Free file state federal taxes Order IRS products online. Free file state federal taxes Research your tax questions online. Free file state federal taxes Search publications online by topic or keyword. Free file state federal taxes View Internal Revenue Bulletins (IRBs) published in the last few years. Free file state federal taxes Figure your withholding allowances using the withholding calculator online at www. Free file state federal taxes irs. Free file state federal taxes gov/individuals. Free file state federal taxes Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Free file state federal taxes Sign up to receive local and national tax news by email. Free file state federal taxes Get information on starting and operating a small business. Free file state federal taxes Phone. Free file state federal taxes Many services are available by phone. Free file state federal taxes Ordering forms, instructions, and publications. Free file state federal taxes Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Free file state federal taxes You should receive your order within 10 days. Free file state federal taxes Asking tax questions. Free file state federal taxes Call the IRS with your tax questions at 1-800-829-1040. Free file state federal taxes Solving problems. Free file state federal taxes You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Free file state federal taxes An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Free file state federal taxes Call your local Taxpayer Assistance Center for an appointment. Free file state federal taxes To find the number, go to www. Free file state federal taxes irs. Free file state federal taxes gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free file state federal taxes TTY/TDD equipment. Free file state federal taxes If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Free file state federal taxes TeleTax topics. Free file state federal taxes Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Free file state federal taxes Refund information. Free file state federal taxes To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Free file state federal taxes Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Free file state federal taxes If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Free file state federal taxes Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free file state federal taxes Refunds are sent out weekly on Fridays. Free file state federal taxes If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Free file state federal taxes Evaluating the quality of our telephone services. Free file state federal taxes To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Free file state federal taxes One method is for a second IRS representative to listen in on or record random telephone calls. Free file state federal taxes Another is to ask some callers to complete a short survey at the end of the call. Free file state federal taxes Walk-in. Free file state federal taxes Many products and services are available on a walk-in basis. Free file state federal taxes Products. Free file state federal taxes You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free file state federal taxes Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Free file state federal taxes Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Free file state federal taxes Services. Free file state federal taxes You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Free file state federal taxes An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Free file state federal taxes If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Free file state federal taxes No appointment is necessary—just walk in. Free file state federal taxes If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Free file state federal taxes A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Free file state federal taxes If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Free file state federal taxes All other issues will be handled without an appointment. Free file state federal taxes To find the number of your local office, go to www. Free file state federal taxes irs. Free file state federal taxes gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free file state federal taxes Mail. Free file state federal taxes You can send your order for forms, instructions, and publications to the address below. Free file state federal taxes You should receive a response within 10 days after your request is received. Free file state federal taxes Internal Revenue Service1201 N. Free file state federal taxes Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Free file state federal taxes You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Free file state federal taxes Prior-year forms, instructions, and publications. Free file state federal taxes Tax Map: an electronic research tool and finding aid. Free file state federal taxes Tax law frequently asked questions. Free file state federal taxes Tax Topics from the IRS telephone response system. Free file state federal taxes Internal Revenue Code—Title 26 of the U. Free file state federal taxes S. Free file state federal taxes Code. Free file state federal taxes Fill-in, print, and save features for most tax forms. Free file state federal taxes Internal Revenue Bulletins. Free file state federal taxes Toll-free and email technical support. Free file state federal taxes Two releases during the year. Free file state federal taxes – The first release will ship the beginning of January. Free file state federal taxes – The final release will ship the beginning of March. Free file state federal taxes Purchase the DVD from National Technical Information Service (NTIS) at www. Free file state federal taxes irs. Free file state federal taxes gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Free file state federal taxes Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Free file state federal taxes The SBA also has publications and videos on a variety of business topics. Free file state federal taxes The following briefly describes assistance provided by the SBA. Free file state federal taxes Small Business Development Centers (SBDCs). Free file state federal taxes   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Free file state federal taxes Help is available when beginning, improving, or expanding a small business. Free file state federal taxes Business Information Centers (BICs). Free file state federal taxes   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Free file state federal taxes BICs also offer one-on-one assistance. Free file state federal taxes Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Free file state federal taxes Service Corps of Retired Executives (SCORE). Free file state federal taxes   SCORE provides small business counseling and training to current and prospective small business owners. Free file state federal taxes SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Free file state federal taxes SCORE also offers a variety of small business workshops. Free file state federal taxes    Internet. Free file state federal taxes You can visit the SBA website at www. Free file state federal taxes sba. Free file state federal taxes gov. Free file state federal taxes While visiting the SBA website, you can find a variety of information of interest to small business owners. Free file state federal taxes    Phone. Free file state federal taxes Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Free file state federal taxes    Walk-in. Free file state federal taxes You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Free file state federal taxes To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Free file state federal taxes Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Free file state federal taxes Most of these are available from the Superintendent of Documents at the Government Printing Office. Free file state federal taxes You can get information and order these publications and pamphlets in several ways. Free file state federal taxes Internet. Free file state federal taxes You can visit the GPO website at www. Free file state federal taxes access. Free file state federal taxes gpo. Free file state federal taxes gov. Free file state federal taxes Mail. Free file state federal taxes Write to the GPO at the following address. Free file state federal taxes Superintendent of DocumentsU. Free file state federal taxes S. Free file state federal taxes Government Printing OfficeP. Free file state federal taxes O. Free file state federal taxes Box 979050St. Free file state federal taxes Louis, MO 63917-9000 Phone. Free file state federal taxes Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. 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Tax Relief for Victims of Severe Storms, Tornadoes, Straight-line Winds and Flooding in Kentucky

Updated 3/13/2012 to include Grayson, Larue, Ohio, Russell and Trimble counties.
Updated 3/12/2012 to include Magoffin and Wolfe counties.
Updated 3/9/2012 to include Bath, Campbell, Carroll, Grant, Martin, Montgomery and Rowan counties.

KY-2012-08, March 7, 2012

DETROIT — Victims of the severe storms, tornadoes, straight-line winds and flooding that started on Feb. 29, 2012 in parts of Kentucky may qualify for tax relief from the Internal Revenue Service.

The President has declared Bath, Campbell, Carroll, Grant, Grayson, Johnson, Kenton, Larue, Laurel, Lawrence, Magoffin, Martin, Menifee, Montgomery, Morgan, Ohio, Pendleton, Rowan, Russell, Trimble and Wolfe counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Feb. 29, and on or before May 31, have been postponed to May 31, 2012. This includes the April 17 deadline for filing 2011 individual income tax returns, making income tax payments and making 2011 contributions to an individual retirement account (IRA).  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Feb. 29, and on or before March 15, as long as the deposits are made by March 15, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until May 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Feb. 29 and on or before May 31.

The IRS also gives affected taxpayers until May 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Feb. 29 and on or before May 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Feb. 29 and on or before March 15 provided the taxpayer makes these deposits by March 15.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Kentucky, Severe Storms, Tornadoes, Straight-line Winds, and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

Related Information

Page Last Reviewed or Updated: 30-Jan-2014

The Free File State Federal Taxes

Free file state federal taxes 4. Free file state federal taxes   Transportation Table of Contents Parking fees. Free file state federal taxes Advertising display on car. Free file state federal taxes Car pools. Free file state federal taxes Hauling tools or instruments. Free file state federal taxes Union members' trips from a union hall. Free file state federal taxes Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. Free file state federal taxes These expenses include the cost of transportation by air, rail, bus, taxi, etc. Free file state federal taxes , and the cost of driving and maintaining your car. Free file state federal taxes Transportation expenses include the ordinary and necessary costs of all of the following. Free file state federal taxes Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Free file state federal taxes Tax home is defined in chapter 1. Free file state federal taxes Visiting clients or customers. Free file state federal taxes Going to a business meeting away from your regular workplace. Free file state federal taxes Getting from your home to a temporary workplace when you have one or more regular places of work. Free file state federal taxes These temporary workplaces can be either within the area of your tax home or outside that area. Free file state federal taxes Transportation expenses do not include expenses you have while traveling away from home overnight. Free file state federal taxes Those expenses are travel expenses discussed in chapter 1 . Free file state federal taxes However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Free file state federal taxes See Car Expenses , later. Free file state federal taxes Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Free file state federal taxes However, there may be exceptions to this general rule. Free file state federal taxes You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Free file state federal taxes Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. Free file state federal taxes Illustration of transportation expenses. Free file state federal taxes    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Free file state federal taxes You may want to refer to it when deciding whether you can deduct your transportation expenses. Free file state federal taxes Temporary work location. Free file state federal taxes   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Free file state federal taxes   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Free file state federal taxes   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Free file state federal taxes   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Free file state federal taxes It will not be treated as temporary after the date you determine it will last more than 1 year. Free file state federal taxes   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Free file state federal taxes You may have deductible travel expenses as discussed in chapter 1 . Free file state federal taxes No regular place of work. Free file state federal taxes   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Free file state federal taxes   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Free file state federal taxes   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Free file state federal taxes These are nondeductible commuting expenses. Free file state federal taxes Two places of work. Free file state federal taxes   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Free file state federal taxes However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Free file state federal taxes   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Free file state federal taxes You cannot deduct them. Free file state federal taxes Armed Forces reservists. Free file state federal taxes   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Free file state federal taxes You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Free file state federal taxes   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Free file state federal taxes In this case, your transportation generally is a nondeductible commuting expense. Free file state federal taxes However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Free file state federal taxes   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Free file state federal taxes   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Free file state federal taxes These expenses are discussed in chapter 1 . Free file state federal taxes   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. Free file state federal taxes For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Free file state federal taxes Commuting expenses. Free file state federal taxes   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Free file state federal taxes These costs are personal commuting expenses. Free file state federal taxes You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Free file state federal taxes You cannot deduct commuting expenses even if you work during the commuting trip. Free file state federal taxes Example. Free file state federal taxes You sometimes use your cell phone to make business calls while commuting to and from work. Free file state federal taxes Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Free file state federal taxes These activities do not change the trip from personal to business. Free file state federal taxes You cannot deduct your commuting expenses. Free file state federal taxes Parking fees. Free file state federal taxes    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Free file state federal taxes You can, however, deduct business-related parking fees when visiting a customer or client. Free file state federal taxes Advertising display on car. Free file state federal taxes   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Free file state federal taxes If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Free file state federal taxes Car pools. Free file state federal taxes   You cannot deduct the cost of using your car in a nonprofit car pool. Free file state federal taxes Do not include payments you receive from the passengers in your income. Free file state federal taxes These payments are considered reimbursements of your expenses. Free file state federal taxes However, if you operate a car pool for a profit, you must include payments from passengers in your income. Free file state federal taxes You can then deduct your car expenses (using the rules in this publication). Free file state federal taxes Hauling tools or instruments. Free file state federal taxes   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Free file state federal taxes However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Free file state federal taxes Union members' trips from a union hall. Free file state federal taxes   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Free file state federal taxes Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Free file state federal taxes Office in the home. Free file state federal taxes   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Free file state federal taxes (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Free file state federal taxes ) Examples of deductible transportation. Free file state federal taxes   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Free file state federal taxes Example 1. Free file state federal taxes You regularly work in an office in the city where you live. Free file state federal taxes Your employer sends you to a 1-week training session at a different office in the same city. Free file state federal taxes You travel directly from your home to the training location and return each day. Free file state federal taxes You can deduct the cost of your daily round-trip transportation between your home and the training location. Free file state federal taxes Example 2. Free file state federal taxes Your principal place of business is in your home. Free file state federal taxes You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Free file state federal taxes Example 3. Free file state federal taxes You have no regular office, and you do not have an office in your home. Free file state federal taxes In this case, the location of your first business contact inside the metropolitan area is considered your office. Free file state federal taxes Transportation expenses between your home and this first contact are nondeductible commuting expenses. Free file state federal taxes Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Free file state federal taxes While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Free file state federal taxes Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Free file state federal taxes You generally can use one of the two following methods to figure your deductible expenses. Free file state federal taxes Standard mileage rate. Free file state federal taxes Actual car expenses. Free file state federal taxes If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Free file state federal taxes See Leasing a Car , later. Free file state federal taxes In this publication, “car” includes a van, pickup, or panel truck. Free file state federal taxes For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Free file state federal taxes Rural mail carriers. Free file state federal taxes   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Free file state federal taxes Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Free file state federal taxes   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Free file state federal taxes You must complete Form 2106 and attach it to your Form 1040, U. Free file state federal taxes S. Free file state federal taxes Individual Income Tax Return. Free file state federal taxes   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Free file state federal taxes It is given as an equipment maintenance allowance (EMA) to employees of the U. Free file state federal taxes S. Free file state federal taxes Postal Service. Free file state federal taxes It is at the rate contained in the 1991 collective bargaining agreement. Free file state federal taxes Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Free file state federal taxes See your employer for information on your reimbursement. Free file state federal taxes    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Free file state federal taxes Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Free file state federal taxes For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Free file state federal taxes If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Free file state federal taxes You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Free file state federal taxes See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Free file state federal taxes You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Free file state federal taxes See chapter 6 for more information on reimbursements . Free file state federal taxes Choosing the standard mileage rate. Free file state federal taxes   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Free file state federal taxes Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Free file state federal taxes   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Free file state federal taxes For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. Free file state federal taxes   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Free file state federal taxes You cannot revoke the choice. Free file state federal taxes However, in later years, you can switch from the standard mileage rate to the actual expenses method. Free file state federal taxes If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Free file state federal taxes Example. Free file state federal taxes Larry is an employee who occasionally uses his own car for business purposes. Free file state federal taxes He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Free file state federal taxes Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. Free file state federal taxes   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Free file state federal taxes Standard mileage rate not allowed. Free file state federal taxes   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Free file state federal taxes (See Rural mail carriers , earlier. Free file state federal taxes ) Note. Free file state federal taxes You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. Free file state federal taxes Five or more cars. Free file state federal taxes   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. Free file state federal taxes However, you may be able to deduct your actual expenses for operating each of the cars in your business. Free file state federal taxes See Actual Car Expenses , later, for information on how to figure your deduction. Free file state federal taxes   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. Free file state federal taxes   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Free file state federal taxes Example 1. Free file state federal taxes Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Free file state federal taxes She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. Free file state federal taxes Example 2. Free file state federal taxes Tony and his employees use his four pickup trucks in his landscaping business. Free file state federal taxes During the year, he traded in two of his old trucks for two newer ones. Free file state federal taxes Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Free file state federal taxes Example 3. Free file state federal taxes Chris owns a repair shop and an insurance business. Free file state federal taxes He and his employees use his two pickup trucks and van for the repair shop. Free file state federal taxes Chris alternates using his two cars for the insurance business. Free file state federal taxes No one else uses the cars for business purposes. Free file state federal taxes Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. Free file state federal taxes Example 4. Free file state federal taxes Maureen owns a car and four vans that are used in her housecleaning business. Free file state federal taxes Her employees use the vans, and she uses the car to travel to various customers. Free file state federal taxes Maureen cannot use the standard mileage rate for the car or the vans. Free file state federal taxes This is because all five vehicles are used in Maureen's business at the same time. Free file state federal taxes She must use actual expenses for all vehicles. Free file state federal taxes Interest. Free file state federal taxes   If you are an employee, you cannot deduct any interest paid on a car loan. Free file state federal taxes This applies even if you use the car 100% for business as an employee. Free file state federal taxes   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. Free file state federal taxes For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Free file state federal taxes You cannot deduct the part of the interest expense that represents your personal use of the car. Free file state federal taxes    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Free file state federal taxes See Publication 936, Home Mortgage Interest Deduction, for more information. Free file state federal taxes Personal property taxes. Free file state federal taxes   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. Free file state federal taxes You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Free file state federal taxes   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Free file state federal taxes If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Free file state federal taxes Parking fees and tolls. Free file state federal taxes   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Free file state federal taxes (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Free file state federal taxes ) Sale, trade-in, or other disposition. Free file state federal taxes   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. Free file state federal taxes See Disposition of a Car , later. Free file state federal taxes Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Free file state federal taxes If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Free file state federal taxes Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Free file state federal taxes Continue to keep records, as explained later in chapter 5 . Free file state federal taxes Business and personal use. Free file state federal taxes   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Free file state federal taxes You can divide your expense based on the miles driven for each purpose. Free file state federal taxes Example. Free file state federal taxes You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. Free file state federal taxes You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Free file state federal taxes Employer-provided vehicle. Free file state federal taxes   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Free file state federal taxes You cannot use the standard mileage rate. Free file state federal taxes See Vehicle Provided by Your Employer in chapter 6. Free file state federal taxes Interest on car loans. Free file state federal taxes   If you are an employee, you cannot deduct any interest paid on a car loan. Free file state federal taxes This interest is treated as personal interest and is not deductible. Free file state federal taxes If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Free file state federal taxes Taxes paid on your car. Free file state federal taxes   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Free file state federal taxes Enter the amount paid on line 7 of Schedule A (Form 1040). Free file state federal taxes Sales taxes. Free file state federal taxes   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Free file state federal taxes Fines and collateral. Free file state federal taxes   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Free file state federal taxes Casualty and theft losses. Free file state federal taxes   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Free file state federal taxes See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Free file state federal taxes Depreciation and section 179 deductions. Free file state federal taxes   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Free file state federal taxes Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Free file state federal taxes However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Free file state federal taxes Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Free file state federal taxes The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Free file state federal taxes   Generally, there are limits on these deductions. Free file state federal taxes Special rules apply if you use your car 50% or less in your work or business. Free file state federal taxes   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. Free file state federal taxes   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. Free file state federal taxes Car defined. Free file state federal taxes   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Free file state federal taxes Its unloaded gross vehicle weight must not be more than 6,000 pounds. Free file state federal taxes A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Free file state federal taxes   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. Free file state federal taxes Qualified nonpersonal use vehicles. Free file state federal taxes   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Free file state federal taxes They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Free file state federal taxes Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Free file state federal taxes More information. Free file state federal taxes   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Free file state federal taxes Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. Free file state federal taxes If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. Free file state federal taxes There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. Free file state federal taxes See Depreciation Limits, later. Free file state federal taxes You can claim the section 179 deduction only in the year you place the car in service. Free file state federal taxes For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. Free file state federal taxes Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Free file state federal taxes A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Free file state federal taxes Example. Free file state federal taxes In 2012, you bought a new car and used it for personal purposes. Free file state federal taxes In 2013, you began to use it for business. Free file state federal taxes Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Free file state federal taxes However, you can claim a depreciation deduction for the business use of the car starting in 2013. Free file state federal taxes See Depreciation Deduction , later. Free file state federal taxes More than 50% business use requirement. Free file state federal taxes   You must use the property more than 50% for business to claim any section 179 deduction. Free file state federal taxes If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Free file state federal taxes The result is the cost of the property that can qualify for the section 179 deduction. Free file state federal taxes Example. Free file state federal taxes Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Free file state federal taxes Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). Free file state federal taxes But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Free file state federal taxes Limits. Free file state federal taxes   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. Free file state federal taxes Limit on the amount of the section 179 deduction. Free file state federal taxes   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Free file state federal taxes   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. Free file state federal taxes If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Free file state federal taxes   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. Free file state federal taxes   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Free file state federal taxes   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Free file state federal taxes You must allocate the dollar limit (after any reduction) between you. Free file state federal taxes   For more information on the above section 179 deduction limits, see Publication 946. Free file state federal taxes Limit for sport utility and certain other vehicles. Free file state federal taxes   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. Free file state federal taxes This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. Free file state federal taxes However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Free file state federal taxes    Limit on total section 179, special depreciation allowance, and depreciation deduction. Free file state federal taxes   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. Free file state federal taxes The limit is reduced if your business use of the car is less than 100%. Free file state federal taxes See Depreciation Limits , later, for more information. Free file state federal taxes Example. Free file state federal taxes In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. Free file state federal taxes However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). Free file state federal taxes Cost of car. Free file state federal taxes   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. Free file state federal taxes For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. Free file state federal taxes Your cost includes only the cash you paid. Free file state federal taxes Basis of car for depreciation. Free file state federal taxes   The amount of the section 179 deduction reduces your basis in your car. Free file state federal taxes If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Free file state federal taxes The resulting amount is the basis in your car you use to figure your depreciation deduction. Free file state federal taxes When to choose. Free file state federal taxes   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. Free file state federal taxes How to choose. Free file state federal taxes    Employees use Form 2106 to make this choice and report the section 179 deduction. Free file state federal taxes All others use Form 4562. Free file state federal taxes   File the appropriate form with either of the following. Free file state federal taxes Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Free file state federal taxes An amended return filed within the time prescribed by law. Free file state federal taxes An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Free file state federal taxes The amended return must also include any resulting adjustments to taxable income. Free file state federal taxes    You must keep records that show the specific identification of each piece of qualifying section 179 property. Free file state federal taxes These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Free file state federal taxes Revoking an election. Free file state federal taxes   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. Free file state federal taxes Recapture of section 179 deduction. Free file state federal taxes   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. Free file state federal taxes If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Free file state federal taxes Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Free file state federal taxes For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Free file state federal taxes Dispositions. Free file state federal taxes   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. Free file state federal taxes You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). Free file state federal taxes For information on the disposition of a car, see Disposition of a Car , later. Free file state federal taxes Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. Free file state federal taxes The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). Free file state federal taxes The special depreciation allowance applies only for the first year the car is placed in service. Free file state federal taxes To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). Free file state federal taxes Combined depreciation. Free file state federal taxes   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Free file state federal taxes For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Free file state federal taxes See Depreciation Limits , later in this chapter. Free file state federal taxes Qualified car. Free file state federal taxes   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Free file state federal taxes You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. Free file state federal taxes Election not to claim the special depreciation allowance. Free file state federal taxes   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Free file state federal taxes If you make this election, it applies to all 5-year property placed in service during the year. Free file state federal taxes   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. Free file state federal taxes    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Free file state federal taxes Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. Free file state federal taxes This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Free file state federal taxes You generally need to know the following things about the car you intend to depreciate. Free file state federal taxes Your basis in the car. Free file state federal taxes The date you place the car in service. Free file state federal taxes The method of depreciation and recovery period you will use. Free file state federal taxes Basis. Free file state federal taxes   Your basis in a car for figuring depreciation is generally its cost. Free file state federal taxes This includes any amount you borrow or pay in cash, other property, or services. Free file state federal taxes   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Free file state federal taxes However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Free file state federal taxes For one of these situations see Exception under Methods of depreciation, later. Free file state federal taxes   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Free file state federal taxes Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Free file state federal taxes Placed in service. Free file state federal taxes   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Free file state federal taxes Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Free file state federal taxes   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. Free file state federal taxes Car placed in service and disposed of in the same year. Free file state federal taxes   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. Free file state federal taxes Methods of depreciation. Free file state federal taxes   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Free file state federal taxes MACRS is discussed later in this chapter. Free file state federal taxes Exception. Free file state federal taxes   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. Free file state federal taxes You must use straight line depreciation over the estimated remaining useful life of the car. Free file state federal taxes   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. Free file state federal taxes The rate per mile varies depending on the year(s) you used the standard mileage rate. Free file state federal taxes For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Free file state federal taxes   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Free file state federal taxes You must use your adjusted basis in your car to figure your depreciation deduction. Free file state federal taxes For additional information on the straight line method of depreciation, see Publication 946. Free file state federal taxes More-than-50%-use test. Free file state federal taxes   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Free file state federal taxes You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Free file state federal taxes   If your business use is 50% or less, you must use the straight line method to depreciate your car. Free file state federal taxes This is explained later under Car Used 50% or Less for Business . Free file state federal taxes Qualified business use. Free file state federal taxes   A qualified business use is any use in your trade or business. Free file state federal taxes It does not include use for the production of income (investment use). Free file state federal taxes However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Free file state federal taxes Use of your car by another person. Free file state federal taxes   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. Free file state federal taxes It is directly connected with your business. Free file state federal taxes It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Free file state federal taxes It results in a payment of fair market rent. Free file state federal taxes This includes any payment to you for the use of your car. Free file state federal taxes Business use changes. Free file state federal taxes   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. Free file state federal taxes See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Free file state federal taxes    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Free file state federal taxes Use for more than one purpose. Free file state federal taxes   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Free file state federal taxes You do this on the basis of mileage. Free file state federal taxes Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. Free file state federal taxes Change from personal to business use. Free file state federal taxes   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. Free file state federal taxes In this case, you figure the percentage of business use for the year as follows. Free file state federal taxes Determine the percentage of business use for the period following the change. Free file state federal taxes Do this by dividing business miles by total miles driven during that period. Free file state federal taxes Multiply the percentage in (1) by a fraction. Free file state federal taxes The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Free file state federal taxes Example. Free file state federal taxes You use a car only for personal purposes during the first 6 months of the year. Free file state federal taxes During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. Free file state federal taxes This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Free file state federal taxes Your business use for the year is 40% (80% × 6/12). Free file state federal taxes Limits. Free file state federal taxes   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Free file state federal taxes The maximum amount you can claim depends on the year in which you placed your car in service. Free file state federal taxes You have to reduce the maximum amount if you did not use the car exclusively for business. Free file state federal taxes See Depreciation Limits , later. Free file state federal taxes Unadjusted basis. Free file state federal taxes   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Free file state federal taxes Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Free file state federal taxes   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Free file state federal taxes Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Free file state federal taxes Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Free file state federal taxes Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. Free file state federal taxes 1, 2006), and alternative motor vehicle credit. Free file state federal taxes   See Form 8910 for information on the alternative motor vehicle credit. Free file state federal taxes If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Free file state federal taxes See Car Used 50% or Less for Business, later, for more information. Free file state federal taxes If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Free file state federal taxes Improvements. Free file state federal taxes   A major improvement to a car is treated as a new item of 5-year recovery property. Free file state federal taxes It is treated as placed in service in the year the improvement is made. Free file state federal taxes It does not matter how old the car is when the improvement is added. Free file state federal taxes Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Free file state federal taxes However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Free file state federal taxes Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. Free file state federal taxes See Depreciation Limits , later. Free file state federal taxes Car trade-in. Free file state federal taxes   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. Free file state federal taxes You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Free file state federal taxes If you make this election, you treat the old car as disposed of at the time of the trade-in. Free file state federal taxes The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. Free file state federal taxes You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Free file state federal taxes You make this election by completing Form 2106, Part II, Section D. Free file state federal taxes This method is explained later, beginning at Effect of trade-in on basis . Free file state federal taxes If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. Free file state federal taxes You must apply two depreciation limits (see Depreciation Limits , later). Free file state federal taxes The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. Free file state federal taxes The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. Free file state federal taxes You must use Form 4562 to compute your depreciation deduction. Free file state federal taxes You cannot use Form 2106, Part II, Section D. Free file state federal taxes This method is explained in Publication 946. Free file state federal taxes   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Free file state federal taxes Otherwise, you must use the method described in (2). Free file state federal taxes Effect of trade-in on basis. Free file state federal taxes   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Free file state federal taxes For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. Free file state federal taxes 168(i)-6(d)(3). Free file state federal taxes Traded car used only for business. Free file state federal taxes   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. Free file state federal taxes Example. Free file state federal taxes Paul trades in a car that has an adjusted basis of $5,000 for a new car. Free file state federal taxes In addition, he pays cash of $20,000 for the new car. Free file state federal taxes His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). Free file state federal taxes Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. Free file state federal taxes Traded car used partly in business. Free file state federal taxes   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. Free file state federal taxes This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. Free file state federal taxes (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Free file state federal taxes See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Free file state federal taxes )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Free file state federal taxes Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. Free file state federal taxes For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Free file state federal taxes Modified Accelerated Cost Recovery System (MACRS). Free file state federal taxes   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Free file state federal taxes   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Free file state federal taxes See Depreciation Limits , later. Free file state federal taxes Recovery period. Free file state federal taxes   Under MACRS, cars are classified as 5-year property. Free file state federal taxes You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Free file state federal taxes This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. Free file state federal taxes Depreciation deduction for certain Indian reservation property. Free file state federal taxes   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Free file state federal taxes The recovery that applies for a business-use car is 3 years instead of 5 years. Free file state federal taxes However, the depreciation limits, discussed later, will still apply. Free file state federal taxes   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. Free file state federal taxes Depreciation methods. Free file state federal taxes   You can use one of the following methods to depreciate your car. Free file state federal taxes The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Free file state federal taxes The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Free file state federal taxes The straight line method (SL) over a 5-year recovery period. Free file state federal taxes    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. Free file state federal taxes This is because the chart has the switch to the straight line method built into its rates. Free file state federal taxes   Before choosing a method, you may wish to consider the following facts. Free file state federal taxes Using the straight line method provides equal yearly deductions throughout the recovery period. Free file state federal taxes Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Free file state federal taxes MACRS depreciation chart. Free file state federal taxes   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Free file state federal taxes Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Free file state federal taxes A similar chart appears in the Instructions for Form 2106. Free file state federal taxes    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Free file state federal taxes   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. Free file state federal taxes You file your return on a fiscal year basis. Free file state federal taxes You file your return for a short tax year (less than 12 months). Free file state federal taxes During the year, all of the following conditions apply. Free file state federal taxes You placed some property in service from January through September. Free file state federal taxes You placed some property in service from October through December. Free file state federal taxes Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. Free file state federal taxes   You placed qualified property in service on an Indian reservation. Free file state federal taxes Depreciation in future years. Free file state federal taxes   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Free file state federal taxes However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Free file state federal taxes In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. Free file state federal taxes See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Free file state federal taxes    In future years, do not use the chart in this edition of the publication. Free file state federal taxes Instead, use the chart in the publication or the form instructions for those future years. Free file state federal taxes Disposition of car during recovery period. Free file state federal taxes   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. Free file state federal taxes See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. Free file state federal taxes How to use the 2013 chart. Free file state federal taxes   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Free file state federal taxes Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Free file state federal taxes If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Free file state federal taxes    Your deduction cannot be more than the maximum depreciation limit for cars. Free file state federal taxes See Depreciation Limits, later. Free file state federal taxes Example. Free file state federal taxes Phil bought a used truck in February 2012 to use exclusively in his landscape business. Free file state federal taxes He paid $9,200 for the truck with no trade-in. Free file state federal taxes Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. Free file state federal taxes Phil used the MACRS depreciation chart in 2012 to find his percentage. Free file state federal taxes The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Free file state federal taxes He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. Free file state federal taxes In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Free file state federal taxes His records show that the business use of his truck was 90% in 2013. Free file state federal taxes Phil used Table 4-1 to find his percentage. Free file state federal taxes Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Free file state federal taxes He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. Free file state federal taxes Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Free file state federal taxes The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Free file state federal taxes The maximum amount you can deduct each year depends on the year you place the car in service. Free file state federal taxes These limits are shown in the following tables. Free file state federal taxes   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Free file state federal taxes 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Free file state federal taxes 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Free file state federal taxes 4$7,660 if you acquired the car before 5/6/2003. Free file state federal taxes $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Free file state federal taxes 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. Free file state federal taxes Trucks and vans. Free file state federal taxes   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Free file state federal taxes A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. Free file state federal taxes For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Free file state federal taxes Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. Free file state federal taxes 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. Free file state federal taxes Car used less than full year. Free file state federal taxes   The depreciation limits are not reduced if you use a car for less than a full year. Free file state federal taxes This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. Free file state federal taxes However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Free file state federal taxes See Reduction for personal use , next. Free file state federal taxes Reduction for personal use. Free file state federal taxes   The depreciation limits are reduced based on your percentage of personal use. Free file state federal taxes If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. Free file state federal taxes Section 179 deduction. Free file state federal taxes   The section 179 deduction is treated as a depreciation deduction. Free file state federal taxes If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. Free file state federal taxes Example. Free file state federal taxes On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Free file state federal taxes He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Free file state federal taxes The car is not qualified property for purposes of the special depreciation allowance. Free file state federal taxes Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Free file state federal taxes This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Free file state federal taxes Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Free file state federal taxes He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Free file state federal taxes Jack has reached his maximum depreciation deduction for 2013. Free file state federal taxes For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Free file state federal taxes Deductions in years after the recovery period. Free file state federal taxes   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. Free file state federal taxes If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Free file state federal taxes Unrecovered basis. Free file state federal taxes   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. Free file state federal taxes The recovery period. Free file state federal taxes   For 5-year property, your recovery period is 6 calendar years. Free file state federal taxes A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. Free file state federal taxes   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Free file state federal taxes You determine your unrecovered basis in the 7th year after you placed the car in service. Free file state federal taxes How to treat unrecovered basis. Free file state federal taxes   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. Free file state federal taxes The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Free file state federal taxes For example, no deduction is allowed for a year you use your car 100% for personal purposes. Free file state federal taxes Example. Free file state federal taxes In April 2007, Bob bought and placed in service a car he used exclusively in his business. Free file state federal taxes The car cost $31,500. Free file state federal taxes Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Free file state federal taxes He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Free file state federal taxes For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. Free file state federal taxes Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. Free file state federal taxes      MACRS     Deprec. Free file state federal taxes Year % Amount Limit Allowed 2007 20. Free file state federal taxes 00 $6,300 $3,060 $ 3,060 2008 32. Free file state federal taxes 00 10,080 4,900 4,900 2009 19. Free file state federal taxes 20 6,048 2,850 2,850 2010 11. Free file state federal taxes 52 3,629 1,775 1,775 2011 11. Free file state federal taxes 52 3,629 1,775 1,775 2012 5. Free file state federal taxes 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. Free file state federal taxes   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Free file state federal taxes If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. Free file state federal taxes   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. Free file state federal taxes However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. Free file state federal taxes For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. Free file state federal taxes Table 4-1. Free file state federal taxes 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Free file state federal taxes ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. Free file state federal taxes   First, using the left column, find the date you first placed the car in service in 2013. Free file state federal taxes Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Free file state federal taxes For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. Free file state federal taxes Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Free file state federal taxes (See Car Used 50% or Less for Business . Free file state federal taxes )  Multiply the unadjusted basis of your car by your business use percentage. Free file state federal taxes Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Free file state federal taxes (Also see Depreciation Limits . Free file state federal taxes )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. Free file state federal taxes 1—Sept. Free file state federal taxes 30 percentage instead of the Oct. Free file state federal taxes 1—Dec. Free file state federal taxes 31 percentage for your car. Free file state federal taxes               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. Free file state federal taxes If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. Free file state federal taxes 1—Sept. Free file state federal taxes 30 for figuring depreciation for your car. Free file state federal taxes See Which Convention Applies? in chapter 4 of Publication 946 for more details. Free file state federal taxes               Example. Free file state federal taxes You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. Free file state federal taxes You