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The Free Turbo Tax Filing

Free turbo tax filing Car Expenses Table of Contents Introduction Depreciation of CarSpecial Depreciation Allowance Depreciation Limit Amended Return Election Not To Claim Special Allowance If you purchased a car after September 10, 2001, for use in your business (or as an employee) and figure your deductible expenses using the actual car expense method, new law contains provisions that may affect your depreciation deduction for that car. Free turbo tax filing Publication 463, Travel, Entertainment, Gift, and Car Expenses, contains information on figuring depreciation on your car. Free turbo tax filing However, Publication 463 does not contain the new provisions because it was printed before the law was enacted. Free turbo tax filing The new provisions are in the Supplement to Publication 463, which is reprinted below. Free turbo tax filing Supplement to Publication 463 Travel, Entertainment, Gift, and Car Expenses   Introduction This supplemental publication is for taxpayers who purchased a car for business purposes after September 10, 2001, and figure their deductible expenses, including a deduction for depreciation, using the actual car expense method. Free turbo tax filing After Publication 463 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Free turbo tax filing Certain provisions of this new law may reduce your taxes for 2001. Free turbo tax filing The new law contains the following provisions. Free turbo tax filing A new depreciation deduction, the special depreciation allowance. Free turbo tax filing An increase in the limit on depreciation for any car for which you claim the new special depreciation allowance. Free turbo tax filing If you have already filed your 2001 return, you may wish to file an amended return to claim any of these benefits. Free turbo tax filing See Amended Return, later. Free turbo tax filing Depreciation of Car If you used the actual car expense method to figure your deduction for a car you own and use in your business (or as an employee), you generally can claim a depreciation deduction. Free turbo tax filing However, there is a limit on the depreciation deduction you can take for your car each year. Free turbo tax filing See Depreciation Limit later. Free turbo tax filing Special Depreciation Allowance The new law allows you to claim a special depreciation allowance. Free turbo tax filing This special allowance is a deduction equal to 30% of the depreciable basis of qualified property. Free turbo tax filing You figure the amount of the special depreciation allowance after any section 179 deduction you choose to claim, but before figuring your regular depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS). Free turbo tax filing See Depreciation Deduction under Actual Car Expenses in chapter 4 of Publication 463 for information about MACRS. Free turbo tax filing You can claim the special depreciation allowance only for the year the qualified property is placed in service. Free turbo tax filing Qualified property. Free turbo tax filing   Qualified property includes a car (any four-wheeled vehicle, including a truck or van not more than 6,000 pounds, that is made primarily for use on public streets, roads, and highways) that meets all of the following requirements. Free turbo tax filing You bought it new. Free turbo tax filing You bought it after September 10, 2001. Free turbo tax filing (But a car is not qualified property if a binding written contract for you to buy the car was in effect before September 11, 2001. Free turbo tax filing ) You began using it for business after September 10, 2001, and used it more than 50% in a qualified business use. Free turbo tax filing Example. Free turbo tax filing Bob bought a new car on October 15, 2001, for $20,000 and placed it in service immediately, using it 75% for business. Free turbo tax filing Bob's car is qualified property. Free turbo tax filing Bob chooses not to take a section 179 deduction for the car. Free turbo tax filing He does claim the new special depreciation allowance. Free turbo tax filing Bob first must figure the car's depreciable basis, which is $15,000 ($20,000 × . Free turbo tax filing 75). Free turbo tax filing He then figures the special depreciation allowance of $4,500 ($15,000 × . Free turbo tax filing 30). Free turbo tax filing The remaining depreciable basis of $10,500 ($15,000 - $4,500) is depreciated using MACRS (200% declining balance method, half-year convention) and results in a deduction of $2,100 ($10,500 × . Free turbo tax filing 20), for a total depreciation deduction for 2001 of $6,600 ($4,500 + $2,100). Free turbo tax filing However, Bob's depreciation deduction is limited to $5,745 ($7,660 × . Free turbo tax filing 75), as discussed next. Free turbo tax filing Depreciation Limit The limit on your depreciation deduction for 2001 is increased to $7,660 for a car that is qualified property (defined above) and for which you claim the special depreciation allowance. Free turbo tax filing The limit is increased to $23,080 if the car is an electric car. Free turbo tax filing The section 179 deduction is treated as depreciation for purposes of this limit. Free turbo tax filing If you use a car less than 100% in your business or work, the limit is $7,660 (or $23,080 for an electric car) multiplied by the percentage of business and investment use during the year. Free turbo tax filing For cars that do not qualify for (or for which you choose not to claim) the special depreciation allowance, the limit remains $3,060 ($9,280 for electric cars). Free turbo tax filing Amended Return If you filed your 2001 calendar year return before June 1, 2002, and did not claim the new special depreciation allowance for a qualified car, you can claim it by filing an amended return on Form 1040X, Amended U. Free turbo tax filing S. Free turbo tax filing Individual Income Tax Return, by April 15, 2003. Free turbo tax filing At the top of the Form 1040X, print “Filed pursuant to Revenue Procedure 2002–33. Free turbo tax filing ” If you are an employee, attach Form 2106, Employee Business Expenses (revised March 2002). Free turbo tax filing If you are self-employed, attach Form 4562, Depreciation and Amortization (revised March 2002). Free turbo tax filing Or, you can claim the special depreciation allowance by filing Form 3115, Application for Change in Accounting Method, with your 2002 return. Free turbo tax filing For details, see Revenue Procedure 2002–33. Free turbo tax filing (But, filing Form 1040X for 2001 enables you to claim the special allowance earlier than attaching Form 3115 to your 2002 return. Free turbo tax filing ) You cannot claim the special depreciation allowance on an amended return (or by using Form 3115) if you made, or are treated as having made, the election not to claim it described later. Free turbo tax filing Example. Free turbo tax filing The facts are the same as in the previous example except that Bob filed his original 2001 income tax return on April 15, 2002, and claimed a $3,000 ($20,000 x . Free turbo tax filing 75 x . Free turbo tax filing 20) depreciation deduction for his new car using MACRS. Free turbo tax filing Bob now wishes to claim the special depreciation allowance for his new car on an amended 2001 return. Free turbo tax filing Bob, who is an employee, files Form 1040X, by April 15, 2003, with an updated Form 2106 (revised March 2002) attached, increasing his total depreciation deduction to $5,745, as figured in the earlier example. Free turbo tax filing Bob's new filled-in Form 2106 is shown later. Free turbo tax filing Election Not To Claim Special Allowance You can elect not to claim the special depreciation allowance for a car by making a statement attached to, or written on, your return indicating that you are electing not to claim the special depreciation allowance for 5-year property. Free turbo tax filing As a general rule, you must make this election by the due date (including extensions) of your return. Free turbo tax filing You can have an automatic extension of 6 months from the due date of your return (excluding extensions) to make the election with an amended return. Free turbo tax filing To get this extension, you must have filed your original return by the due date (including extensions). Free turbo tax filing At the top of the statement, print “Filed pursuant to section 301. Free turbo tax filing 9100–2. Free turbo tax filing ” If you elect not to claim the special depreciation allowance for a car, you cannot claim it for any other 5-year property placed in service during the same year. Free turbo tax filing Unless you elect (or are treated as electing) not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Free turbo tax filing Deemed election for return filed before June 1, 2002. Free turbo tax filing   If you did not make the election not to claim the special depreciation allowance in the time and manner described above, you will still be treated as electing not to claim it if all of the following apply. Free turbo tax filing You filed your 2001 return before June 1, 2002. Free turbo tax filing You claimed depreciation on your return but did not claim the special depreciation allowance. Free turbo tax filing You did not file an amended 2001 return by April 15, 2003, or a Form 3115 with your 2002 return, to claim the special depreciation allowance. Free turbo tax filing Form 2106, Page 1, for Bob Smith Form 2106, Page 2, for Bob Smith Prev  Up  Next   Home   More Online Publications