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Free State Taxs

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Free State Taxs

Free state taxs Publication 915 - Main Content Table of Contents Are Any of Your Benefits Taxable?Worksheet A. Free state taxs Exemption from withholding. Free state taxs How To Report Your Benefits How Much Is Taxable?Examples Lump-Sum ElectionExample Deductions Related to Your BenefitsRepayments More Than Gross Benefits Worksheets AppendixForm SSA-1099, Social Security Benefit Statement 2013 Form SSA-1042S, Social Security Benefit Statement 2013 (Nonresident Aliens) Form RRB-1099, Payments by the Railroad Retirement Board 2013 Form RRB-1042S, Payments by the Railroad Retirement Board 2013 (Nonresident Aliens) How To Get Tax HelpLow Income Taxpayer Clinics Are Any of Your Benefits Taxable? To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Free state taxs When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Free state taxs S. Free state taxs savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned by bona fide residents of American Samoa or Puerto Rico. Free state taxs Children's benefits. Free state taxs   The rules in this publication apply to benefits received by children. Free state taxs See Who is taxed , later. Free state taxs The SSA issues Form SSA-1099 and Form SSA-1042S. Free state taxs The RRB issues Form RRB-1099 and Form RRB-1042S. Free state taxs These forms (tax statements) report the amounts paid and repaid, and taxes withheld for a tax year. Free state taxs You may receive more than one of these forms for the same tax year. Free state taxs See the Appendix at the end of this publication for more information. Free state taxs Each original Form RRB-1099 or Form RRB-1042S is valid unless it has been corrected. Free state taxs The RRB will issue a corrected Form RRB-1099 or Form RRB-1042S if there is an error in the original. Free state taxs A corrected Form RRB-1099 or Form RRB-1042S is indicated as “CORRECTED” and replaces the corresponding original Form RRB-1099 or Form RRB-1042S. Free state taxs You must use the latest corrected Form RRB-1099 or Form RRB-1042S you received and any original Form RRB-1099 or Form RRB-1042S that the RRB has not corrected when you determine what amounts to report on your tax return. Free state taxs Figuring total income. Free state taxs   To figure the total of one-half of your benefits plus your other income, use Worksheet A, discussed later. Free state taxs If the total is more than your base amount, part of your benefits may be taxable. Free state taxs   If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Free state taxs Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Free state taxs If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Free state taxs If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Free state taxs Base amount. Free state taxs   Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er), $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $-0- if you are married filing separately and lived with your spouse at any time during 2013. Free state taxs Worksheet A. Free state taxs   You can use Worksheet A to figure the amount of income to compare with your base amount. Free state taxs This is a quick way to check whether some of your benefits may be taxable. Free state taxs     Worksheet A. Free state taxs A Quick Way To Check if Your Benefits May Be Taxable Keep for your records A. Free state taxs Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Free state taxs Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Free state taxs (If you received more than one form, combine the amounts from box 5 and enter the total. Free state taxs ) A. Free state taxs   Note. Free state taxs If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Free state taxs B. Free state taxs Enter one-half of the amount on line A B. Free state taxs   C. Free state taxs Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Free state taxs   D. Free state taxs Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Free state taxs   E. Free state taxs Add lines B, C, and D E. Free state taxs   Note. Free state taxs Compare the amount on line E to your base amount for your filing status. Free state taxs If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Free state taxs If the amount on line E is more than your base amount, some of your benefits may be taxable. Free state taxs You need to complete Worksheet 1, shown later. Free state taxs If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits . Free state taxs   Example. Free state taxs You and your spouse (both over 65) are filing a joint return for 2013 and you both received social security benefits during the year. Free state taxs In January 2014, you received a Form SSA-1099 showing net benefits of $7,500 in box 5. Free state taxs Your spouse received a Form SSA-1099 showing net benefits of $3,500 in box 5. Free state taxs You also received a taxable pension of $22,800 and interest income of $500. Free state taxs You did not have any tax-exempt interest income. Free state taxs Your benefits are not taxable for 2013 because your income, as figured in Worksheet A below, is not more than your base amount ($32,000) for married filing jointly. Free state taxs   Even though none of your benefits are taxable, you must file a return for 2013 because your taxable gross income ($23,300) exceeds the minimum filing requirement amount for your filing status. Free state taxs     Filled-in Worksheet A. Free state taxs A Quick Way To Check if Your Benefits May Be Taxable Keep for your records A. Free state taxs Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Free state taxs Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Free state taxs (If you received more than one form, combine the amounts from box 5 and enter the total. Free state taxs ) A. Free state taxs $11,000 Note. Free state taxs If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Free state taxs B. Free state taxs Enter one-half of the amount on line A B. Free state taxs 5,500 C. Free state taxs Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Free state taxs 23,300 D. Free state taxs Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Free state taxs -0- E. Free state taxs Add lines B, C, and D E. Free state taxs $28,800 Note. Free state taxs Compare the amount on line E to your base amount for your filing status. Free state taxs If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Free state taxs If the amount on line E is more than your base amount, some of your benefits may be taxable. Free state taxs You need to complete Worksheet 1, shown later. Free state taxs If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits . Free state taxs   Who is taxed. Free state taxs   Benefits are included in the taxable income (to the extent they are taxable) of the person who has the legal right to receive the benefits. Free state taxs For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. Free state taxs One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child. Free state taxs Repayment of benefits. Free state taxs   Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Free state taxs It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Free state taxs If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Free state taxs   Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Free state taxs Your repayments are shown in box 4. Free state taxs The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Free state taxs Use the amount in box 5 to figure whether any of your benefits are taxable. Free state taxs Example. Free state taxs In 2012, you received $3,000 in social security benefits, and in 2013 you received $2,700. Free state taxs In March 2013, SSA notified you that you should have received only $2,500 in benefits in 2012. Free state taxs During 2013, you repaid $500 to SSA. Free state taxs The Form SSA-1099 you received for 2013 shows $2,700 in box 3 (gross amount) and $500 in box 4 (repayment). Free state taxs The amount in box 5 shows your net benefits of $2,200 ($2,700 minus $500). Free state taxs Tax withholding and estimated tax. Free state taxs   You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. Free state taxs If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Statement. Free state taxs   If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. Free state taxs For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Free state taxs U. Free state taxs S. Free state taxs citizens residing abroad. Free state taxs   U. Free state taxs S. Free state taxs citizens who are residents of the following countries are exempt from U. Free state taxs S. Free state taxs tax on their benefits. Free state taxs Canada. Free state taxs Egypt. Free state taxs Germany. Free state taxs Ireland. Free state taxs Israel. Free state taxs Italy. Free state taxs (You must also be a citizen of Italy for the exemption to apply. Free state taxs ) Romania. Free state taxs United Kingdom. Free state taxs   The SSA will not withhold U. Free state taxs S. Free state taxs tax from your benefits if you are a U. Free state taxs S. Free state taxs citizen. Free state taxs   The RRB will withhold U. Free state taxs S. Free state taxs tax from your benefits unless you file Form RRB-1001, Nonresident Questionnaire, with the RRB to provide citizenship and residency information. Free state taxs If you do not file Form RRB-1001, the RRB will consider you a nonresident alien and withhold tax from your railroad retirement benefits at a 30% rate. Free state taxs Contact the RRB to get this form. Free state taxs Lawful permanent residents. Free state taxs   For U. Free state taxs S. Free state taxs income tax purposes, lawful permanent residents (green card holders) are considered resident aliens until their lawful permanent resident status under the immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Free state taxs Social security benefits paid to a green card holder are not subject to 30% withholding. Free state taxs If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Free state taxs SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Free state taxs If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Free state taxs You must also attach the following information to your Form 1040 or 1040A: A copy of the Form SSA-1042S, Social Security Benefit Statement, A copy of the “green card,” and A signed declaration that includes the following statements:    “The SSA should not have withheld federal income tax from my social security benefits because I am a U. Free state taxs S. Free state taxs lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Free state taxs I am filing a U. Free state taxs S. Free state taxs income tax return for the tax year as a resident alien reporting all of my worldwide income. Free state taxs I have not claimed benefits for the tax year under an income tax treaty as a nonresident alien. Free state taxs ” Nonresident aliens. Free state taxs   A nonresident alien is an individual who is not a citizen or resident of the United States. Free state taxs If you are a nonresident alien, the rules discussed in this publication do not apply to you. Free state taxs Instead, 85% of your benefits are taxed at a 30% rate, unless exempt (or subject to a lower rate) by treaty. Free state taxs You will receive a Form SSA-1042S or Form RRB-1042S showing the amount of your benefits. Free state taxs These forms will also show the tax rate and the amount of tax withheld from your benefits. Free state taxs   Under tax treaties with the following countries, residents of these countries are exempt from U. Free state taxs S. Free state taxs tax on their benefits. Free state taxs Canada. Free state taxs Egypt. Free state taxs Germany. Free state taxs Ireland. Free state taxs Israel. Free state taxs Italy. Free state taxs Japan. Free state taxs Romania. Free state taxs United Kingdom. Free state taxs   Under a treaty with India, benefits paid to individuals who are both residents and nationals of India are exempt from U. Free state taxs S. Free state taxs tax if the benefits are for services performed for the United States, its subdivisions, or local government authorities. Free state taxs   If you are a resident of Switzerland, your total benefit amount will be taxed at a 15% rate. Free state taxs   For more information on whether you are a nonresident alien, see Publication 519, U. Free state taxs S. Free state taxs Tax Guide for Aliens. Free state taxs Exemption from withholding. Free state taxs   If your social security benefits are exempt from tax because you are a resident of one of the treaty countries listed, the SSA will not withhold U. Free state taxs S. Free state taxs tax from your benefits. Free state taxs   If your railroad retirement benefits are exempt from tax because you are a resident of one of the treaty countries listed, you can claim an exemption from withholding by filing Form RRB-1001 with the RRB. Free state taxs Contact the RRB to get this form. Free state taxs Canadian or German social security benefits paid to U. Free state taxs S. Free state taxs residents. Free state taxs   Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U. Free state taxs S. Free state taxs residents are treated for U. Free state taxs S. Free state taxs income tax purposes as if they were paid under the social security legislation of the United States. Free state taxs If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1, shown later. Free state taxs How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040 or Form 1040A. Free state taxs You cannot use Form 1040EZ. Free state taxs Reporting on Form 1040. Free state taxs   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 20a and the taxable part on line 20b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Free state taxs Reporting on Form 1040A. Free state taxs   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 14a and the taxable part on line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Free state taxs Benefits not taxable. Free state taxs   If you are filing Form 1040EZ, do not report any benefits on your tax return. Free state taxs If you are filing Form 1040 or Form 1040A, report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs How Much Is Taxable? If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Free state taxs Generally, the higher that total amount, the greater the taxable part of your benefits. Free state taxs Maximum taxable part. Free state taxs   Generally, up to 50% of your benefits will be taxable. Free state taxs However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Free state taxs The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Free state taxs You are married filing separately and lived with your spouse at any time during 2013. Free state taxs Which worksheet to use. Free state taxs   A worksheet you can use to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Free state taxs You can use either that worksheet or Worksheet 1 in this publication, unless any of the following situations applies to you. Free state taxs You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse is covered by a retirement plan at work. Free state taxs In this situation you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Free state taxs Situation (1) does not apply and you take an exclusion for interest from qualified U. Free state taxs S. Free state taxs savings bonds (Form 8815), for adoption benefits (Form 8839), for foreign earned income or housing (Form 2555 or Form 2555-EZ), or for income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Free state taxs In this situation, you must use Worksheet 1 in this publication to figure your taxable benefits. Free state taxs You received a lump-sum payment for an earlier year. Free state taxs In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in this publication. Free state taxs See Lump-Sum Election , later. Free state taxs Examples A few examples you can use as a guide to figure the taxable part of your benefits follow. Free state taxs Filled-in Worksheet 1. Free state taxs Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free state taxs None of your benefits are taxable for 2013. Free state taxs For more information, see Repayments More Than Gross Benefits . Free state taxs If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free state taxs S. Free state taxs Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free state taxs Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free state taxs Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free state taxs $5,980         2. Free state taxs Enter one-half of line 1 2. Free state taxs 2,990     3. Free state taxs Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free state taxs 28,990     4. Free state taxs Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free state taxs -0-     5. Free state taxs Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free state taxs -0-     6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs 31,980     7. Free state taxs Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free state taxs  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free state taxs -0-     8. Free state taxs Is the amount on line 7 less than the amount on line 6?             No. Free state taxs None of your social security benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs             Yes. Free state taxs Subtract line 7 from line 6 8. Free state taxs 31,980     9. Free state taxs If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free state taxs 25,000       Note. Free state taxs If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 9 less than the amount on line 8?             No. Free state taxs None of your benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs             Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs 6,980     11. Free state taxs Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free state taxs 9,000     12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs -0-     13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs 6,980     14. Free state taxs Enter one-half of line 13 14. Free state taxs 3,490     15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs 2,990     16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs -0-     17. Free state taxs Add lines 15 and 16 17. Free state taxs 2,990     18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs 5,083     19. Free state taxs Taxable benefits. Free state taxs Enter the smaller of line 17 or line 18. Free state taxs Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free state taxs $2,990       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free state taxs         Example 1. Free state taxs George White is single and files Form 1040 for 2013. Free state taxs In addition to receiving social security payments, he received a fully taxable pension of $18,600, wages from a part-time job of $9,400, and taxable interest income of $990, for a total of $28,990. Free state taxs He received a Form SSA-1099 in January 2014 that shows his net social security benefits of $5,980 in box 5. Free state taxs   To figure his taxable benefits, George completes Worksheet 1, shown below. Free state taxs On line 20a of his Form 1040, George enters his net benefits of $5,980. Free state taxs On line 20b, he enters his taxable benefits of $2,990. Free state taxs Example 2. Free state taxs Ray and Alice Hopkins file a joint return on Form 1040A for 2013. Free state taxs Ray is retired and received a fully taxable pension of $15,500. Free state taxs He also received social security benefits and his Form SSA-1099 for 2013 shows net benefits of $5,600 in box 5. Free state taxs Alice worked during the year and had wages of $14,000. Free state taxs She made a deductible payment to her IRA account of $1,000. Free state taxs Ray and Alice have two savings accounts with a total of $250 in taxable interest income. Free state taxs They complete Worksheet 1, entering $29,750 ($15,500 + $14,000 + $250) on line 3. Free state taxs They find none of Ray's social security benefits are taxable. Free state taxs On Form 1040A, they enter $5,600 on line 14a and -0- on line 14b. Free state taxs Filled-in Worksheet 1. Free state taxs Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free state taxs None of your benefits are taxable for 2013. Free state taxs For more information, see Repayments More Than Gross Benefits . Free state taxs If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free state taxs S. Free state taxs Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free state taxs Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free state taxs Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free state taxs $5,600         2. Free state taxs Enter one-half of line 1 2. Free state taxs 2,800     3. Free state taxs Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free state taxs 29,750     4. Free state taxs Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free state taxs -0-     5. Free state taxs Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free state taxs -0-     6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs 32,550     7. Free state taxs Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free state taxs  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free state taxs 1,000     8. Free state taxs Is the amount on line 7 less than the amount on line 6?             No. Free state taxs None of your social security benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs             Yes. Free state taxs Subtract line 7 from line 6 8. Free state taxs 31,550     9. Free state taxs If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free state taxs 32,000       Note. Free state taxs If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 9 less than the amount on line 8?             No. Free state taxs None of your benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs             Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs       11. Free state taxs Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free state taxs       12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs       13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs       14. Free state taxs Enter one-half of line 13 14. Free state taxs       15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs       16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs       17. Free state taxs Add lines 15 and 16 17. Free state taxs       18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs       19. Free state taxs Taxable benefits. Free state taxs Enter the smaller of line 17 or line 18. Free state taxs Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free state taxs         If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free state taxs         Example 3. Free state taxs Joe and Betty Johnson file a joint return on Form 1040 for 2013. Free state taxs Joe is a retired railroad worker and in 2013 received the social security equivalent benefit (SSEB) portion of tier 1 railroad retirement benefits. Free state taxs Joe's Form RRB-1099 shows $10,000 in box 5. Free state taxs Betty is a retired government worker and received a fully taxable pension of $38,000. Free state taxs They had $2,300 in taxable interest income plus interest of $200 on a qualified U. Free state taxs S. Free state taxs savings bond. Free state taxs The savings bond interest qualified for the exclusion. Free state taxs They figure their taxable benefits by completing Worksheet 1 below. Free state taxs Because they have qualified U. Free state taxs S. Free state taxs savings bond interest, they follow the note at the beginning of the worksheet and use the amount from line 2 of their Schedule B (Form 1040A or 1040) on line 3 of the worksheet instead of the amount from line 8a of their Form 1040. Free state taxs On line 3 of the worksheet, they enter $40,500 ($38,000 + $2,500). Free state taxs More than 50% of Joe's net benefits are taxable because the income on line 8 of the worksheet ($45,500) is more than $44,000. Free state taxs (See Maximum taxable part under How Much Is Taxable earlier. Free state taxs ) Joe and Betty enter $10,000 on Form 1040, line 20a, and $6,275 on Form 1040, line 20b. Free state taxs Filled-in Worksheet 1. Free state taxs Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free state taxs None of your benefits are taxable for 2013. Free state taxs For more information, see Repayments More Than Gross Benefits . Free state taxs If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free state taxs S. Free state taxs Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free state taxs Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free state taxs Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free state taxs $10,000         2. Free state taxs Enter one-half of line 1 2. Free state taxs 5,000     3. Free state taxs Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free state taxs 40,500     4. Free state taxs Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free state taxs -0-     5. Free state taxs Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free state taxs -0-     6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs 45,500     7. Free state taxs Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free state taxs  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free state taxs -0-     8. Free state taxs Is the amount on line 7 less than the amount on line 6?             No. Free state taxs None of your social security benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs             Yes. Free state taxs Subtract line 7 from line 6 8. Free state taxs 45,500     9. Free state taxs If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free state taxs 32,000       Note. Free state taxs If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 9 less than the amount on line 8?             No. Free state taxs None of your benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs             Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs 13,500     11. Free state taxs Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free state taxs 12,000     12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs 1,500     13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs 12,000     14. Free state taxs Enter one-half of line 13 14. Free state taxs 6,000     15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs 5,000     16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs 1,275     17. Free state taxs Add lines 15 and 16 17. Free state taxs 6,275     18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs 8,500     19. Free state taxs Taxable benefits. Free state taxs Enter the smaller of line 17 or line 18. Free state taxs Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free state taxs $6,275       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free state taxs         Filled-in Worksheet 1. Free state taxs Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free state taxs None of your benefits are taxable for 2013. Free state taxs For more information, see Repayments More Than Gross Benefits . Free state taxs If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free state taxs S. Free state taxs Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free state taxs Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free state taxs Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free state taxs $4,000         2. Free state taxs Enter one-half of line 1 2. Free state taxs 2,000     3. Free state taxs Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free state taxs 8,000     4. Free state taxs Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free state taxs -0-     5. Free state taxs Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free state taxs -0-     6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs 10,000     7. Free state taxs Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free state taxs  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free state taxs -0-     8. Free state taxs Is the amount on line 7 less than the amount on line 6?             No. Free state taxs None of your social security benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs             Yes. Free state taxs Subtract line 7 from line 6 8. Free state taxs 10,000     9. Free state taxs If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free state taxs         Note. Free state taxs If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 9 less than the amount on line 8?             No. Free state taxs None of your benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs             Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs       11. Free state taxs Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free state taxs       12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs       13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs       14. Free state taxs Enter one-half of line 13 14. Free state taxs       15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs       16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs       17. Free state taxs Add lines 15 and 16 17. Free state taxs 8,500     18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs 3,400     19. Free state taxs Taxable benefits. Free state taxs Enter the smaller of line 17 or line 18. Free state taxs Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free state taxs $3,400       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free state taxs         Example 4. Free state taxs Bill and Eileen Jones are married and live together, but file separate Form 1040 returns for 2013. Free state taxs Bill earned $8,000 during 2013. Free state taxs The only other income he had for the year was $4,000 net social security benefits (box 5 of his Form SSA-1099). Free state taxs Bill figures his taxable benefits by completing Worksheet 1 below. Free state taxs He must include 85% of his social security benefits in his taxable income because he is married filing separately and lived with his spouse during 2013. Free state taxs See How Much Is Taxable earlier. Free state taxs Bill enters $4,000 on his Form 1040, line 20a, and $3,400 on Form 1040, line 20b. Free state taxs Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Free state taxs This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Free state taxs No part of the lump-sum death benefit is subject to tax. Free state taxs Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Free state taxs However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Free state taxs You can elect this method if it lowers your taxable benefits. Free state taxs Under the lump-sum election method, you refigure the taxable part of all your benefits for the earlier year (including the lump-sum payment) using that year's income. Free state taxs Then you subtract any taxable benefits for that year that you previously reported. Free state taxs The remainder is the taxable part of the lump-sum payment. Free state taxs Add it to the taxable part of your benefits for 2013 (figured without the lump-sum payment for the earlier year). Free state taxs Because the earlier year's taxable benefits are included in your 2013 income, no adjustment is made to the earlier year's return. Free state taxs Do not file an amended return for the earlier year. Free state taxs Will the lump-sum election method lower your taxable benefits?   To find out, take the following steps. Free state taxs Complete Worksheet 1 in this publication. Free state taxs Complete Worksheet 2 and Worksheet 3 as appropriate. Free state taxs Use Worksheet 2 if your lump-sum payment was for a year after 1993. Free state taxs Use Worksheet 3 if it was for 1993 or an earlier year. Free state taxs Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received the lump-sum payment. Free state taxs Complete Worksheet 4. Free state taxs Compare the taxable benefits on line 19 of Worksheet 1 with the taxable benefits on line 21 of Worksheet 4. Free state taxs If the taxable benefits on Worksheet 4 are lower than the taxable benefits on Worksheet 1, you can elect to report the lower amount on your return. Free state taxs Making the election. Free state taxs   If you elect to report your taxable benefits under the lump-sum election method, follow the instructions at the bottom of Worksheet 4. Free state taxs Do not attach the completed worksheets to your return. Free state taxs Keep them with your records. Free state taxs    Once you elect this method of figuring the taxable part of a lump-sum payment, you can revoke your election only with the consent of the IRS. Free state taxs Lump-sum payment reported on Form SSA-1099 or RRB-1099. Free state taxs   If you received a lump-sum payment in 2013 that includes benefits for one or more earlier years after 1983, it will be included in box 3 of either Form SSA-1099 or Form RRB-1099. Free state taxs That part of any lump-sum payment for years before 1984 is not taxed and will not be shown on the form. Free state taxs The form will also show the year (or years) the payment is for. Free state taxs However, Form RRB-1099 will not show a breakdown by year (or years) of any lump-sum payment for years before 2011. Free state taxs You must contact the RRB for a breakdown by year for any amount shown in box 9. Free state taxs Example Jane Jackson is single. Free state taxs In 2012 she applied for social security disability benefits but was told she was ineligible. Free state taxs She appealed the decision and won. Free state taxs In 2013, she received a lump-sum payment of $6,000, of which $2,000 was for 2012 and $4,000 was for 2013. Free state taxs Jane also received $5,000 in social security benefits in 2013, so her total benefits in 2013 were $11,000. Free state taxs Jane's other income for 2012 and 2013 is as follows. Free state taxs   Income 2012 2013     Wages $20,000 $ 3,500     Interest income 2,000 2,500     Dividend income 1,000 1,500     Fully taxable pension   18,000     Total $23,000 $25,500   To see if the lump-sum election method results in lower taxable benefits, she completes Worksheets 1, 2, and 4 from this publication. Free state taxs She does not need to complete Worksheet 3 because her lump-sum payment was for years after 1993. Free state taxs Jane completes Worksheet 1 to find the amount of her taxable benefits for 2013 under the regular method. Free state taxs She completes Worksheet 2 to find the taxable part of the lump-sum payment for 2012 under the lump-sum election method. Free state taxs She completes Worksheet 4 to decide if the lump-sum election method will lower her taxable benefits. Free state taxs After completing the worksheets, Jane compares the amounts from Worksheet 4, line 21, and Worksheet 1, line 19. Free state taxs Because the amount on Worksheet 4 is smaller, she chooses to use the lump-sum election method. Free state taxs To do this, she prints “LSE” to the left of Form 1040, line 20a. Free state taxs She then enters $11,000 on Form 1040, line 20a, and her taxable benefits of $2,500 on line 20b. Free state taxs Jane's filled-in worksheets (1, 2, and 4) follow. Free state taxs Jane Jackson's Filled-in Worksheet 1. Free state taxs Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free state taxs None of your benefits are taxable for 2013. Free state taxs For more information, see Repayments More Than Gross Benefits . Free state taxs If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free state taxs S. Free state taxs Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free state taxs Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free state taxs Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free state taxs $11,000         2. Free state taxs Enter one-half of line 1 2. Free state taxs 5,500     3. Free state taxs Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free state taxs 25,500     4. Free state taxs Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free state taxs -0-     5. Free state taxs Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free state taxs -0-     6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs 31,000     7. Free state taxs Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free state taxs  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free state taxs -0-     8. Free state taxs Is the amount on line 7 less than the amount on line 6?             No. Free state taxs None of your social security benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs             Yes. Free state taxs Subtract line 7 from line 6 8. Free state taxs 31,000     9. Free state taxs If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free state taxs 25,000       Note. Free state taxs If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 9 less than the amount on line 8?             No. Free state taxs None of your benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs             Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs 6,000     11. Free state taxs Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free state taxs 9,000     12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs -0-     13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs 6,000     14. Free state taxs Enter one-half of line 13 14. Free state taxs 3,000     15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs 3,000     16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs -0-     17. Free state taxs Add lines 15 and 16 17. Free state taxs 3,000     18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs 9,350     19. Free state taxs Taxable benefits. Free state taxs Enter the smaller of line 17 or line 18. Free state taxs Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free state taxs $3,000       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free state taxs         Jane Jackson's Filled-in Worksheet 2. Free state taxs Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993)     Enter earlier year 2012 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Free state taxs $2,000           Note. Free state taxs If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Free state taxs Otherwise, go on to line 2. Free state taxs             2. Free state taxs Enter one-half of line 1 2. Free state taxs 1,000   3. Free state taxs Enter your adjusted gross income for the earlier year 3. Free state taxs 23,000   4. Free state taxs Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U. Free state taxs S. Free state taxs savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Domestic production activities (for 2005 through 2012) (Form 1040, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Free state taxs -0-   5. Free state taxs Enter any tax-exempt interest received in the earlier year 5. Free state taxs -0-   6. Free state taxs Add lines 2 through 5 6. Free state taxs 24,000   7. Free state taxs Enter your taxable benefits for the earlier year that you previously reported 7. Free state taxs -0-   8. Free state taxs Subtract line 7 from line 6 8. Free state taxs 24,000   9. Free state taxs If, for the earlier year, you were:     Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and you lived apart from your spouse for all of the earlier year, enter $25,000 9. Free state taxs 25,000     Note. Free state taxs If you were married filing separately and you lived with your spouse at any time during the earlier year, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 8 more than the amount on line 9?       No. Free state taxs Skip lines 10 through 20 and enter -0- on line 21. Free state taxs       Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs     11. Free state taxs Enter $12,000 if married filing jointly for the earlier year; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the earlier year 11. Free state taxs     12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs     13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs     14. Free state taxs Enter one-half of line 13 14. Free state taxs     15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs     16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs     17. Free state taxs Add lines 15 and 16 17. Free state taxs     18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs     19. Free state taxs Refigured taxable benefits. Free state taxs Enter the smaller of line 17 or line 18 19. Free state taxs     20. Free state taxs Enter your taxable benefits for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20. Free state taxs     21. Free state taxs Additional taxable benefits. Free state taxs Subtract line 20 from line 19. Free state taxs Also enter this amount on Worksheet 4, line 20 21. Free state taxs -0-     Do not file an amended return for this earlier year. Free state taxs Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2013. Free state taxs   Jane Jackson's Filled-in Worksheet 4. Free state taxs Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3)     Complete Worksheet 1 and Worksheets 2 and 3 as appropriate before completing this worksheet. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for 2013, minus the lump-sum payment for years before 2013 1. Free state taxs $9,000         Note. Free state taxs If line 1 is zero or less, skip lines 2 through 18, enter -0- on line 19 and go to line 20. Free state taxs Otherwise, go on to line 2. Free state taxs           2. Free state taxs Enter one-half of line 1 2. Free state taxs 4,500   3. Free state taxs Enter the amount from Worksheet 1, line 3 3. Free state taxs 25,500   4. Free state taxs Enter the amount from Worksheet 1, line 4 4. Free state taxs -0-   5. Free state taxs Enter the amount from Worksheet 1, line 5 5. Free state taxs -0-   6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs 30,000   7. Free state taxs Enter the amount from Worksheet 1, line 7 7. Free state taxs -0-   8. Free state taxs Subtract line 7 from line 6 8. Free state taxs 30,000   9. Free state taxs Enter the amount from Worksheet 1, line 9. Free state taxs But if you are married filing separately and lived with your spouse at any time during 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then, go to line 18 9. Free state taxs 25,000   10. Free state taxs Is the amount on line 8 more than the amount on line 9? No. Free state taxs Skip lines 10 through 18, enter -0- on line 19, and go to line 20. Free state taxs  Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs 5,000   11. Free state taxs Enter the amount from Worksheet 1, line 11 11. Free state taxs 9,000   12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs -0-   13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs 5,000   14. Free state taxs Enter one-half of line 13 14. Free state taxs 2,500   15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs 2,500   16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs -0-   17. Free state taxs Add lines 15 and 16 17. Free state taxs 2,500   18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs 7,650   19. Free state taxs Enter the smaller of line 17 or line 18 19. Free state taxs 2,500   20. Free state taxs Enter the total of the amounts from Worksheet 2, line 21, and Worksheet 3, line 14, for all earlier years for which the lump-sum payment was received 20. Free state taxs -0-   21. Free state taxs Taxable benefits under lump-sum election method. Free state taxs Add lines 19 and 20 21. Free state taxs $2,500   Next. Free state taxs Is line 21 above smaller than Worksheet 1, line 19? No. Free state taxs Do not use this method to figure your taxable benefits. Free state taxs Follow the instructions on Worksheet 1 to report your benefits. Free state taxs  Yes. Free state taxs You can elect to report your taxable benefits under this method. Free state taxs To elect this method:     Enter “LSE” to the left of Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs If line 21 above is zero, follow the instructions in line 10 for “No” on Worksheet 1. Free state taxs Otherwise: Enter the amount from Worksheet 1, line 1, on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs Enter the amount from line 21 above on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs   Deductions Related to Your Benefits You may be entitled to deduct certain amounts related to the benefits you receive. Free state taxs Disability payments. Free state taxs   You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier year. Free state taxs If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can take an itemized deduction for the part of the payments you included in gross income in the earlier year. Free state taxs If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. Free state taxs Claim the deduction or credit in the same way explained under Repayment of benefits received in an earlier year in the section Repayments More Than Gross Benefits , later. Free state taxs Legal expenses. Free state taxs   You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. Free state taxs   Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Free state taxs Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Free state taxs If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Free state taxs Do not use Worksheet 1 in this case. Free state taxs If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Free state taxs If you have any questions about this negative figure, contact your local SSA office or your local RRB field office. Free state taxs Joint return. Free state taxs   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5, but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. Free state taxs You do this to get your net benefits when figuring if your combined benefits are taxable. Free state taxs Example. Free state taxs John and Mary file a joint return for 2013. Free state taxs John received Form SSA-1099 showing $3,000 in box 5. Free state taxs Mary also received Form SSA-1099 and the amount in box 5 was ($500). Free state taxs John and Mary will use $2,500 ($3,000 minus $500) as the amount of their net benefits when figuring if any of their combined benefits are taxable. Free state taxs Repayment of benefits received in an earlier year. Free state taxs   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Free state taxs Deduction $3,000 or less. Free state taxs   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Free state taxs Claim it on Schedule A (Form 1040), line 23. Free state taxs Deduction more than $3,000. Free state taxs   If this deduction is more than $3,000, you should figure your tax two ways: Figure your tax for 2013 with the itemized deduction included on Schedule A, line 28. Free state taxs Figure your tax for 2013 in the following steps: Figure the tax without the itemized deduction included on Schedule A, line 28. Free state taxs For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. Free state taxs Then refigure the tax for that year. Free state taxs Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts. Free state taxs Subtract the result in (c) from the result in (a). Free state taxs   Compare the tax figured in methods (1) and (2). Free state taxs Your tax for 2013 is the smaller of the two amounts. Free state taxs If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. Free state taxs If method (2) results in less tax, claim a credit for the amount from step 2(c) above on Form 1040, line 71. Free state taxs Check box d and enter “I. Free state taxs R. Free state taxs C. Free state taxs 1341” in the space next to that box. Free state taxs If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28. Free state taxs Worksheets Blank Worksheets 1 through 4 are provided in this section: Worksheet 1, Figuring Your Taxable Benefits; Worksheet 2, Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993); Worksheet 3, Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year Before 1994); Worksheet 4, Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3). Free state taxs Worksheet 1. Free state taxs Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free state taxs Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free state taxs None of your benefits are taxable for 2013. Free state taxs For more information, see Repayments More Than Gross Benefits . Free state taxs If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free state taxs S. Free state taxs Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free state taxs Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free state taxs 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free state taxs Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free state taxs           2. Free state taxs Enter one-half of line 1 2. Free state taxs       3. Free state taxs Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free state taxs       4. Free state taxs Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free state taxs       5. Free state taxs Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free state taxs       6. Free state taxs Combine lines 2, 3, 4, and 5 6. Free state taxs       7. Free state taxs Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free state taxs  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free state taxs       8. Free state taxs Is the amount on line 7 less than the amount on line 6?             No. Free state taxs None of your social security benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free state taxs             Yes. Free state taxs Subtract line 7 from line 6 8. Free state taxs       9. Free state taxs If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free state taxs         Note. Free state taxs If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 9 less than the amount on line 8?             No. Free state taxs None of your benefits are taxable. Free state taxs Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free state taxs If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free state taxs             Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs       11. Free state taxs Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free state taxs       12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs       13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs       14. Free state taxs Enter one-half of line 13 14. Free state taxs       15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs       16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs       17. Free state taxs Add lines 15 and 16 17. Free state taxs       18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs       19. Free state taxs Taxable benefits. Free state taxs Enter the smaller of line 17 or line 18. Free state taxs Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free state taxs         If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free state taxs         Worksheet 2. Free state taxs Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993)     Enter earlier year 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Free state taxs             Note. Free state taxs If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Free state taxs Otherwise, go on to line 2. Free state taxs             2. Free state taxs Enter one-half of line 1 2. Free state taxs     3. Free state taxs Enter your adjusted gross income for the earlier year 3. Free state taxs     4. Free state taxs Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U. Free state taxs S. Free state taxs savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Domestic production activities (for 2005 through 2012) (Form 1040, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Free state taxs     5. Free state taxs Enter any tax-exempt interest received in the earlier year 5. Free state taxs     6. Free state taxs Add lines 2 through 5 6. Free state taxs     7. Free state taxs Enter your taxable benefits for the earlier year that you previously reported 7. Free state taxs     8. Free state taxs Subtract line 7 from line 6 8. Free state taxs     9. Free state taxs If, for the earlier year, you were:     Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and you lived apart from your spouse for all of the earlier year, enter $25,000 9. Free state taxs       Note. Free state taxs If you were married filing separately and you lived with your spouse at any time during the earlier year, skip lines 9 through 16; multiply line 8 by 85% (. Free state taxs 85) and enter the result on line 17. Free state taxs Then go to line 18. Free state taxs         10. Free state taxs Is the amount on line 8 more than the amount on line 9?       No. Free state taxs Skip lines 10 through 20 and enter -0- on line 21. Free state taxs       Yes. Free state taxs Subtract line 9 from line 8 10. Free state taxs     11. Free state taxs Enter $12,000 if married filing jointly for the earlier year; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the earlier year 11. Free state taxs     12. Free state taxs Subtract line 11 from line 10. Free state taxs If zero or less, enter -0- 12. Free state taxs     13. Free state taxs Enter the smaller of line 10 or line 11 13. Free state taxs     14. Free state taxs Enter one-half of line 13 14. Free state taxs     15. Free state taxs Enter the smaller of line 2 or line 14 15. Free state taxs     16. Free state taxs Multiply line 12 by 85% (. Free state taxs 85). Free state taxs If line 12 is zero, enter -0- 16. Free state taxs     17. Free state taxs Add lines 15 and 16 17. Free state taxs     18. Free state taxs Multiply line 1 by 85% (. Free state taxs 85) 18. Free state taxs     19. Free state taxs Refigured taxable benefits. Free state taxs Enter the smaller of line 17 or line 18 19. Free state taxs     20. Free state taxs Enter your taxable benefits for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20. Free state taxs     21. Free state taxs Additional taxable benefits. Free state taxs Subtract line 20 from line 19. Free state taxs Also enter this amount on Worksheet 4, line 20 21. Free state taxs       Do not file an amended return for this earlier year. Free state taxs Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2013. Free state taxs   Worksheet 3. Free state taxs Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year Before 1994) Enter earlier year 1. Free state taxs Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Free state taxs           Note. Free state taxs If line 1 is zero or less, skip lines 2 through 13 and enter -0- on line 14. Free state taxs Otherwise, go on to line 2. Free state taxs           2. Free state taxs Enter one-half of line 1 2. Free state taxs     3. Free state taxs Enter your adjusted gross income for the earlier year 3. Free state taxs     4. Free state taxs Enter the total of any exclusions/adjustments you claimed in the earlier year for: Qualified U. Free state taxs S. Free state taxs savings bond interest (Form 8815) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Free state taxs     5. Free state taxs Enter any tax-exempt interest received in the earlier year 5. Free state taxs     6. Free state taxs Add lines 2 through 5 6. Free state taxs     7. Free state taxs Enter your taxable benefits for the earlier year that you previously reported 7. Free state taxs     8. Free state taxs Subtract line 7 from line 6 8. Free state taxs     9. Free state taxs Enter $25,000 ($32,000 if married filing jointly for the earlier year; $-0- if married filing separately for the earlier year and you lived with your spouse at any time during the earlier year) 9. Free state taxs     10. Free state taxs Is the amount on line 8 more than the amount on line 9? No. Free state taxs Skip lines 10 through 13 and enter -0- on line 14. Free state taxs  Yes. Free state taxs Subtract line 9 from line 8. Free state taxs 10. Free state taxs     11. Free state taxs Enter one-half of line 10 11. Free state taxs     12. Free state taxs Refigured taxable benefits. Free state taxs Enter the smaller of line 2 or line 11 12. Free state taxs     13. Free state taxs Enter your taxable benefits for the earlier year (or as refigured due to a previous

Publication 15-A (2014), Employer's Supplemental Tax Guide

(Supplement to Publication 15 (Circular E),Employer's Tax Guide)

For use in 2014


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The Free State Taxs

Free state taxs Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Free state taxs Property not disposed of or abandoned. Free state taxs Special rule for normal retirements from item accounts. Free state taxs Abandoned property. Free state taxs Single item accounts. Free state taxs Multiple property account. Free state taxs Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Free state taxs If your property qualified for MACRS, you must depreciate it under MACRS. Free state taxs See Publication 946. Free state taxs However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Free state taxs Also, you can elect to exclude certain property from being depreciated under MACRS. Free state taxs Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Free state taxs Intangible property. Free state taxs   You cannot depreciate intangible property under ACRS or MACRS. Free state taxs You depreciate intangible property using any other reasonable method, usually, the straight line method. Free state taxs Note. Free state taxs The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Free state taxs For more information, see chapter 12 of Publication 535. Free state taxs Public utility property. Free state taxs   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Free state taxs This type of property is subject to depreciation under a special rule. Free state taxs Videocassettes. Free state taxs   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Free state taxs You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Free state taxs The straight line method, salvage value, and useful life are discussed later under Methods To Use. Free state taxs You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Free state taxs How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Free state taxs These methods are straight line and declining balance. Free state taxs To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Free state taxs They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Free state taxs The amount of the deduction in any year also depends on which method of depreciation you choose. Free state taxs Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Free state taxs The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Free state taxs Your original basis is usually the purchase price. Free state taxs However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Free state taxs Adjusted basis. Free state taxs   Events will often change the basis of property. Free state taxs When this occurs, the changed basis is called the adjusted basis. Free state taxs Some events, such as improvements you make, increase basis. Free state taxs Events such as deducting casualty losses and depreciation decrease basis. Free state taxs If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Free state taxs   Publication 551 explains how to figure basis for property acquired in different ways. Free state taxs It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Free state taxs Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Free state taxs It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Free state taxs It is how long it will continue to be useful to you, not how long the property will last. Free state taxs Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Free state taxs The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Free state taxs Consider all these factors before you arrive at a useful life for your property. Free state taxs The useful life of the same type of property varies from user to user. Free state taxs When you determine the useful life of your property, keep in mind your own experience with similar property. Free state taxs You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Free state taxs Change in useful life. Free state taxs   You base your estimate of useful life on certain facts. Free state taxs If these facts change significantly, you can adjust your estimate of the remaining useful life. Free state taxs However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Free state taxs Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Free state taxs You generally cannot depreciate property below a reasonable salvage value. Free state taxs Determining salvage value. Free state taxs   Salvage value is the estimated value of property at the end of its useful life. Free state taxs It is what you expect to get for the property if you sell it after you can no longer use it productively. Free state taxs You must estimate the salvage value of a piece of property when you first acquire it. Free state taxs   Salvage value is affected both by how you use the property and how long you use it. Free state taxs If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Free state taxs However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Free state taxs Changing salvage value. Free state taxs   Once you determine the salvage value for property, you should not change it merely because prices have changed. Free state taxs However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Free state taxs When you redetermine the salvage value, take into account the facts that exist at the time. Free state taxs Net salvage. Free state taxs   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Free state taxs You can choose either salvage value or net salvage when you figure depreciation. Free state taxs You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Free state taxs However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Free state taxs Your salvage value can never be less than zero. Free state taxs Ten percent rule. Free state taxs   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Free state taxs You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Free state taxs If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Free state taxs Methods To Use Two methods of depreciation are the straight line and declining balance methods. Free state taxs If ACRS or MACRS does not apply, you can use one of these methods. Free state taxs The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Free state taxs Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Free state taxs One of these methods was the straight line method. Free state taxs This method was also used for intangible property. Free state taxs It lets you deduct the same amount of depreciation each year. Free state taxs To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Free state taxs Subtract the salvage value, if any, from the adjusted basis. Free state taxs The balance is the total amount of depreciation you can take over the useful life of the property. Free state taxs Divide the balance by the number of years remaining in the useful life. Free state taxs This gives you the amount of your yearly depreciation deduction. Free state taxs Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Free state taxs If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Free state taxs Example. Free state taxs In April 1994, Frank bought a franchise for $5,600. Free state taxs It expires in 10 years. Free state taxs This property is intangible property that cannot be depreciated under MACRS. Free state taxs Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Free state taxs He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Free state taxs He must prorate the $560 for his 9 months of use in 1994. Free state taxs This gives him a deduction of $420 ($560 ÷ 9/12). Free state taxs In 1995, Frank can deduct $560 for the full year. Free state taxs Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Free state taxs The rate cannot be more than twice the straight line rate. Free state taxs Rate of depreciation. Free state taxs   Under this method, you must determine your declining balance rate of depreciation. Free state taxs The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Free state taxs (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Free state taxs ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Free state taxs Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Free state taxs Depreciation deductions. Free state taxs   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Free state taxs This gives you the amount of your deduction. Free state taxs For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Free state taxs To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Free state taxs Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Free state taxs Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Free state taxs Your depreciation deduction for the second year is $1,600. Free state taxs   As you can see from this example, your adjusted basis in the property gets smaller each year. Free state taxs Also, under this method, deductions are larger in the earlier years and smaller in the later years. Free state taxs You can make a change to the straight line method without consent. Free state taxs Salvage value. Free state taxs   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Free state taxs However, you cannot depreciate the property below its reasonable salvage value. Free state taxs Determine salvage value using the rules discussed earlier, including the special 10% rule. Free state taxs Example. Free state taxs If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Free state taxs But if your estimate of salvage value was $900, you can only deduct $100. Free state taxs This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Free state taxs Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Free state taxs You can group the videocassettes by title for making this projection. Free state taxs You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Free state taxs The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Free state taxs For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Free state taxs How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Free state taxs If you change your method of depreciation, it is generally a change in your method of accounting. Free state taxs You must get IRS consent before making the change. Free state taxs However, you do not need permission for certain changes in your method of depreciation. Free state taxs The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Free state taxs For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Free state taxs Change to the straight line method. Free state taxs   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Free state taxs However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Free state taxs When the change is made, figure depreciation based on your adjusted basis in the property at that time. Free state taxs Your adjusted basis takes into account all previous depreciation deductions. Free state taxs Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Free state taxs   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Free state taxs You cannot make the change on an amended return filed after the due date of the original return (including extensions). Free state taxs   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Free state taxs   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Free state taxs Changes that require permission. Free state taxs   For most other changes in method of depreciation, you must get permission from the IRS. Free state taxs To request a change in method of depreciation, file Form 3115. Free state taxs File the application within the first 180 days of the tax year the change is to become effective. Free state taxs In most cases, there is a user fee that must accompany Form 3115. Free state taxs See the instructions for Form 3115 to determine if a fee is required. Free state taxs Changes granted automatically. Free state taxs   The IRS automatically approves certain changes of a method of depreciation. Free state taxs But, you must file Form 3115 for these automatic changes. Free state taxs   However, IRS can deny permission if Form 3115 is not filed on time. Free state taxs For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Free state taxs B. Free state taxs 420. Free state taxs Changes for which approval is not automatic. Free state taxs   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Free state taxs   You must request and receive permission for these changes. Free state taxs To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Free state taxs Change from an improper method. Free state taxs   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Free state taxs You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Free state taxs If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Free state taxs However, you must file the amended return before the filing date for the next tax year. Free state taxs Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Free state taxs You can do this by selling, exchanging, or abandoning the item of property. Free state taxs You can also withdraw it from use without disposing of it. Free state taxs For example, you could place it in a supplies or scrap account. Free state taxs Retirements can be either normal or abnormal depending on all facts and circumstances. Free state taxs The rules discussed next do not apply to MACRS and ACRS property. Free state taxs Normal retirement. Free state taxs   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Free state taxs A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Free state taxs Abnormal retirement. Free state taxs   A retirement can be abnormal if you withdraw the property early or under other circumstances. Free state taxs For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Free state taxs Gain or loss on retirement. Free state taxs   There are special rules for figuring the gain or loss on retirement of property. Free state taxs The gain or loss will depend on several factors. Free state taxs These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Free state taxs A single property account contains only one item of property. Free state taxs A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Free state taxs Sale or exchange. Free state taxs   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Free state taxs See Publication 544. Free state taxs Property not disposed of or abandoned. Free state taxs   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Free state taxs You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Free state taxs However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Free state taxs   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Free state taxs Special rule for normal retirements from item accounts. Free state taxs   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Free state taxs However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Free state taxs   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Free state taxs Abandoned property. Free state taxs   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Free state taxs However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Free state taxs Basis of property retired. Free state taxs   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Free state taxs Single item accounts. Free state taxs   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Free state taxs This is generally the cost or other basis of the item of property less depreciation. Free state taxs See Publication 551. Free state taxs Multiple property account. Free state taxs   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Free state taxs If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Free state taxs   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Free state taxs The method of depreciation used for the multiple property account is used. Free state taxs You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Free state taxs Prev  Up  Next   Home   More Online Publications