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How To Amend Taxes

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How To Amend Taxes

How to amend taxes Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). How to amend taxes Cost Basis The basis of property you buy is usually its cost. How to amend taxes The cost is the amount you pay in cash, debt obligations, other property, or services. How to amend taxes Your cost also includes amounts you pay for the following items. How to amend taxes Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). How to amend taxes  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. How to amend taxes Loans with low or no interest. How to amend taxes   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. How to amend taxes You generally have unstated interest if your interest rate is less than the applicable federal rate. How to amend taxes For more information, see Unstated Interest and Original Issue Discount in Publication 537. How to amend taxes Purchase of a business. How to amend taxes   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. How to amend taxes Allocate the price among the various assets, including any section 197 intangibles. How to amend taxes See Allocating the Basis, later. How to amend taxes Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. How to amend taxes If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. How to amend taxes You must adjust the basis of stocks for certain events that occur after purchase. How to amend taxes See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. How to amend taxes Identifying stock or bonds sold. How to amend taxes   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. How to amend taxes If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. How to amend taxes For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How to amend taxes Mutual fund shares. How to amend taxes   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. How to amend taxes For more information, see Publication 550. How to amend taxes Real Property Real property, also called real estate, is land and generally anything built on or attached to it. How to amend taxes If you buy real property, certain fees and other expenses become part of your cost basis in the property. How to amend taxes Real estate taxes. How to amend taxes   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. How to amend taxes You cannot deduct them as taxes. How to amend taxes   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. How to amend taxes Do not include that amount in the basis of the property. How to amend taxes If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How to amend taxes Settlement costs. How to amend taxes   Your basis includes the settlement fees and closing costs for buying property. How to amend taxes You cannot include in your basis the fees and costs for getting a loan on property. How to amend taxes A fee for buying property is a cost that must be paid even if you bought the property for cash. How to amend taxes   The following items are some of the settlement fees or closing costs you can include in the basis of your property. How to amend taxes Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. How to amend taxes   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. How to amend taxes   The following items are some settlement fees and closing costs you cannot include in the basis of the property. How to amend taxes Casualty insurance premiums. How to amend taxes Rent for occupancy of the property before closing. How to amend taxes Charges for utilities or other services related to occupancy of the property before closing. How to amend taxes Charges connected with getting a loan. How to amend taxes The following are examples of these charges. How to amend taxes Points (discount points, loan origination fees). How to amend taxes Mortgage insurance premiums. How to amend taxes Loan assumption fees. How to amend taxes Cost of a credit report. How to amend taxes Fees for an appraisal required by a lender. How to amend taxes Fees for refinancing a mortgage. How to amend taxes If these costs relate to business property, items (1) through (3) are deductible as business expenses. How to amend taxes Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. How to amend taxes Points. How to amend taxes   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. How to amend taxes Generally, you deduct the points over the term of the loan. How to amend taxes For more information on how to deduct points, see Points in chapter 4 of Publication 535. How to amend taxes Points on home mortgage. How to amend taxes   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. How to amend taxes If certain requirements are met, you can deduct the points in full for the year in which they are paid. How to amend taxes Reduce the basis of your home by any seller-paid points. How to amend taxes For more information, see Points in Publication 936, Home Mortgage Interest Deduction. How to amend taxes Assumption of mortgage. How to amend taxes   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. How to amend taxes Example. How to amend taxes If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. How to amend taxes Constructing assets. How to amend taxes   If you build property or have assets built for you, your expenses for this construction are part of your basis. How to amend taxes Some of these expenses include the following costs. How to amend taxes Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. How to amend taxes In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. How to amend taxes You must include them in the asset's basis. How to amend taxes Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. How to amend taxes    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. How to amend taxes Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. How to amend taxes If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. How to amend taxes In certain circumstances, you may be subject to the uniform capitalization rules, next. How to amend taxes Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. How to amend taxes Activities subject to the rules. How to amend taxes   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. How to amend taxes Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. How to amend taxes However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. How to amend taxes   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. How to amend taxes Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. How to amend taxes Tangible personal property includes films, sound recordings, video tapes, books, or similar property. How to amend taxes    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. How to amend taxes To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. How to amend taxes You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. How to amend taxes   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. How to amend taxes Example. How to amend taxes If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. How to amend taxes The nondeductible part of the cost is not subject to the uniform capitalization rules. How to amend taxes More information. How to amend taxes   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. How to amend taxes Exceptions. How to amend taxes   The following are not subject to the uniform capitalization rules. How to amend taxes Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. How to amend taxes For other exceptions to the uniform capitalization rules, see section 1. How to amend taxes 263A-1(b) of the regulations. How to amend taxes   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. How to amend taxes Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. How to amend taxes The basis of an intangible asset is usually the cost to buy or create it. How to amend taxes If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. How to amend taxes The basis of certain intangibles can be amortized. How to amend taxes See chapter 8 of Publication 535 for information on the amortization of these costs. How to amend taxes Patents. How to amend taxes   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. How to amend taxes If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. How to amend taxes The value of the inventor's time spent on an invention is not part of the basis. How to amend taxes Copyrights. How to amend taxes   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. How to amend taxes Do not include the value of your time as the author, or any other person's time you did not pay for. How to amend taxes Franchises, trademarks, and trade names. How to amend taxes   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. How to amend taxes Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. How to amend taxes You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. How to amend taxes See Trade or Business Acquired below. How to amend taxes Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. How to amend taxes If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. How to amend taxes However, see Trade or Business Acquired, next. How to amend taxes Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. How to amend taxes Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. How to amend taxes Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. How to amend taxes Certificates of deposit, U. How to amend taxes S. How to amend taxes Government securities, foreign currency, and actively traded personal property, including stock and securities. How to amend taxes Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. How to amend taxes Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. How to amend taxes All other assets except section 197 intangibles, goodwill, and going concern value. How to amend taxes Section 197 intangibles except goodwill and going concern value. How to amend taxes Goodwill and going concern value (whether or not they qualify as section 197 intangibles). How to amend taxes Agreement. How to amend taxes   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. How to amend taxes This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How to amend taxes Reporting requirement. How to amend taxes   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How to amend taxes Use Form 8594 to provide this information. How to amend taxes The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How to amend taxes More information. How to amend taxes   See Sale of a Business in chapter 2 of Publication 544 for more information. How to amend taxes Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. How to amend taxes Figure the basis of each asset by multiplying the lump sum by a fraction. How to amend taxes The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. How to amend taxes If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. How to amend taxes Demolition of building. How to amend taxes   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. How to amend taxes Do not claim the costs as a current deduction. How to amend taxes Modification of building. How to amend taxes   A modification of a building will not be treated as a demolition if the following conditions are satisfied. How to amend taxes 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. How to amend taxes   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. How to amend taxes   If these conditions are met, add the costs of the modifications to the basis of the building. How to amend taxes Subdivided lots. How to amend taxes   If you buy a tract of land and subdivide it, you must determine the basis of each lot. How to amend taxes This is necessary because you must figure the gain or loss on the sale of each individual lot. How to amend taxes As a result, you do not recover your entire cost in the tract until you have sold all of the lots. How to amend taxes   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. How to amend taxes The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. How to amend taxes Future improvement costs. How to amend taxes   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. How to amend taxes See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. How to amend taxes Use of erroneous cost basis. How to amend taxes   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. How to amend taxes Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. How to amend taxes Example. How to amend taxes You bought a tract of land to which you assigned a cost of $15,000. How to amend taxes You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. How to amend taxes You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. How to amend taxes Several years later you determine that your original basis in the tract was $22,500 and not $15,000. How to amend taxes You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. How to amend taxes You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). How to amend taxes You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. How to amend taxes Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. How to amend taxes The result of these adjustments to the basis is the adjusted basis. How to amend taxes Increases to Basis Increase the basis of any property by all items properly added to a capital account. How to amend taxes These include the cost of any improvements having a useful life of more than 1 year. How to amend taxes Rehabilitation expenses also increase basis. How to amend taxes However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. How to amend taxes If you have to recapture any of the credit, increase your basis by the recaptured amount. How to amend taxes If you make additions or improvements to business property, keep separate accounts for them. How to amend taxes Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. How to amend taxes For more information, see Publication 946. How to amend taxes The following items increase the basis of property. How to amend taxes The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. How to amend taxes Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. How to amend taxes Do not deduct them as taxes. How to amend taxes However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. How to amend taxes Example. How to amend taxes Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. How to amend taxes Add the assessment to your property's basis. How to amend taxes In this example, the assessment is a depreciable asset. How to amend taxes Deducting vs. How to amend taxes Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. How to amend taxes For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. How to amend taxes However, you can choose either to deduct or to capitalize certain other costs. How to amend taxes If you capitalize these costs, include them in your basis. How to amend taxes If you deduct them, do not include them in your basis. How to amend taxes See Uniform Capitalization Rules earlier. How to amend taxes The costs you can choose to deduct or to capitalize include the following. How to amend taxes Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. How to amend taxes If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. How to amend taxes For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. How to amend taxes Table 1. How to amend taxes Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. How to amend taxes Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. How to amend taxes Some of these items are discussed next. How to amend taxes Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. How to amend taxes You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. How to amend taxes To make this determination, compare the repaired property to the property before the casualty. How to amend taxes For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. How to amend taxes Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. How to amend taxes It reduces the basis of the affected part of the property. How to amend taxes If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. How to amend taxes Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. How to amend taxes For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. How to amend taxes Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. How to amend taxes This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. How to amend taxes If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. How to amend taxes Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. How to amend taxes For more information about the section 179 deduction, see Publication 946. How to amend taxes Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. How to amend taxes Reduce the basis of the property for which you received the subsidy by the excluded amount. How to amend taxes For more information on this subsidy, see Publication 525. How to amend taxes Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. How to amend taxes If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. How to amend taxes If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. How to amend taxes Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. How to amend taxes If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. How to amend taxes In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. How to amend taxes For information on figuring depreciation, see Publication 946. How to amend taxes If you are claiming depreciation on a business vehicle, see Publication 463. How to amend taxes If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. How to amend taxes Include the excess depreciation in your gross income and add it to your basis in the property. How to amend taxes For information on the computation of excess depreciation, see chapter 4 in Publication 463. How to amend taxes Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. How to amend taxes A debt includes any indebtedness for which you are liable or which attaches to property you hold. How to amend taxes You can exclude canceled debt from income in the following situations. How to amend taxes Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). How to amend taxes If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. How to amend taxes However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. How to amend taxes For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. How to amend taxes For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. How to amend taxes For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. How to amend taxes Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. How to amend taxes For more information on the rules for the sale of a home, see Publication 523. How to amend taxes Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. How to amend taxes This also applies to amounts you received under an employer's adoption assistance program and excluded from income. How to amend taxes For more information Form 8839, Qualified Adoption Expenses. How to amend taxes Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. How to amend taxes You must reduce your basis in that property by the credit claimed. How to amend taxes For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. How to amend taxes Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. How to amend taxes You also paid commissions of $2,000 and title search and legal fees of $600. How to amend taxes You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. How to amend taxes Immediately you spent $20,000 in remodeling the building before you placed it in service. How to amend taxes You were allowed depreciation of $14,526 for the years 2005 through 2009. How to amend taxes In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. How to amend taxes You claimed a deduction for this loss. How to amend taxes You spent $5,500 to repair the damages and extend the useful life of the building. How to amend taxes The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. How to amend taxes It is not affected by any of the above adjustments. How to amend taxes Basis Other Than Cost There are many times when you cannot use cost as basis. How to amend taxes In these cases, the fair market value or the adjusted basis of property may be used. How to amend taxes Adjusted basis is discussed earlier. How to amend taxes Fair market value (FMV). How to amend taxes   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. How to amend taxes Sales of similar property on or about the same date may be helpful in figuring the property's FMV. How to amend taxes Property Received for Services If you receive property for services, include the property's FMV in income. How to amend taxes The amount you include in income becomes your basis. How to amend taxes If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. How to amend taxes Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. How to amend taxes If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. How to amend taxes Your basis in the property is its FMV (your purchase price plus the amount you include in income). How to amend taxes If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. How to amend taxes However, your basis in the property is still its FMV. How to amend taxes See Employee Discounts in Publication 15-B. How to amend taxes Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. How to amend taxes Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. How to amend taxes There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. How to amend taxes When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. How to amend taxes Example. How to amend taxes Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. How to amend taxes The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. How to amend taxes You do not report any income until you have completed the 5 years of service that satisfy the condition. How to amend taxes Fair market value. How to amend taxes   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. How to amend taxes Example. How to amend taxes You received stock from your employer for services you performed. How to amend taxes If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. How to amend taxes At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. How to amend taxes This is a restriction that by its terms will never end and you must consider it when you figure the FMV. How to amend taxes Election. How to amend taxes   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. How to amend taxes If you make this choice, the substantially vested rules do not apply. How to amend taxes Your basis is the amount you paid plus the amount you included in income. How to amend taxes   See the discussion of Restricted Property in Publication 525 for more information. How to amend taxes Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. How to amend taxes A taxable gain or deductible loss is also known as a recognized gain or loss. How to amend taxes If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. How to amend taxes A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. How to amend taxes Example. How to amend taxes You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. How to amend taxes You must report a taxable gain of $3,000 for the land. How to amend taxes The tractor has a basis of $6,000. How to amend taxes Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. How to amend taxes Similar or related property. How to amend taxes   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. How to amend taxes However, make the following adjustments. How to amend taxes Decrease the basis by the following. How to amend taxes Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. How to amend taxes Increase the basis by the following. How to amend taxes Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. How to amend taxes Money or property not similar or related. How to amend taxes   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. How to amend taxes Example. How to amend taxes The state condemned your property. How to amend taxes The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. How to amend taxes You realized a gain of $5,000 ($31,000 − $26,000). How to amend taxes You bought replacement property similar in use to the converted property for $29,000. How to amend taxes You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. How to amend taxes Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. How to amend taxes The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. How to amend taxes   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. How to amend taxes Example. How to amend taxes The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. How to amend taxes Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. How to amend taxes More information. How to amend taxes   For more information about condemnations, see Involuntary Conversions in Publication 544. How to amend taxes For more information about casualty and theft losses, see Publication 547. How to amend taxes Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. How to amend taxes If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. How to amend taxes A nontaxable gain or loss is also known as an unrecognized gain or loss. How to amend taxes Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. How to amend taxes To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. How to amend taxes There must also be an exchange of like-kind property. How to amend taxes For more information, see Like-Kind Exchanges in Publication 544. How to amend taxes The basis of the property you receive is the same as the basis of the property you gave up. How to amend taxes Example. How to amend taxes You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. How to amend taxes Your basis in the new property is the same as the basis of the old ($50,000). How to amend taxes Exchange expenses. How to amend taxes   Exchange expenses are generally the closing costs you pay. How to amend taxes They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. How to amend taxes Add them to the basis of the like-kind property received. How to amend taxes Property plus cash. How to amend taxes   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. How to amend taxes Example. How to amend taxes You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. How to amend taxes Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). How to amend taxes Special rules for related persons. How to amend taxes   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. How to amend taxes Each person must report any gain or loss not recognized on the original exchange. How to amend taxes Each person reports it on the tax return filed for the year in which the later disposition occurs. How to amend taxes If this rule applies, the basis of the property received in the original exchange will be its fair market value. How to amend taxes   These rules generally do not apply to the following kinds of property dispositions. How to amend taxes Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. How to amend taxes Related persons. How to amend taxes   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. How to amend taxes   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. How to amend taxes ), see Nondeductible Loss in chapter 2 of Publication 544. How to amend taxes Exchange of business property. How to amend taxes   Exchanging the assets of one business for the assets of another business is a multiple property exchange. How to amend taxes For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. How to amend taxes Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. How to amend taxes The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. How to amend taxes Decrease the basis by the following amounts. How to amend taxes Any money you receive, and Any loss you recognize on the exchange. How to amend taxes Increase the basis by the following amounts. How to amend taxes Any additional costs you incur, and Any gain you recognize on the exchange. How to amend taxes If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. How to amend taxes Example. How to amend taxes You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. How to amend taxes You realized a gain of $200 ($6,200 − $6,000). How to amend taxes This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). How to amend taxes You include all the gain in income (recognized gain) because the gain is less than the cash received. How to amend taxes Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. How to amend taxes   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. How to amend taxes The rest is the basis of the like property. How to amend taxes Example. How to amend taxes You had an adjusted basis of $15,000 in real estate you held for investment. How to amend taxes You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. How to amend taxes The truck is unlike property. How to amend taxes You realized a gain of $1,500 ($16,500 − $15,000). How to amend taxes This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). How to amend taxes You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. How to amend taxes Your basis in the properties you received is figured as follows. How to amend taxes Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). How to amend taxes This is the truck's FMV. How to amend taxes The rest ($12,500) is the basis of the real estate. How to amend taxes Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. How to amend taxes Example. How to amend taxes You are a salesperson and you use one of your cars 100% for business. How to amend taxes You have used this car in your sales activities for 2 years and have depreciated it. How to amend taxes Your adjusted basis in the car is $22,600 and its FMV is $23,100. How to amend taxes You are interested in a new car, which sells for $28,000. How to amend taxes If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). How to amend taxes However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. How to amend taxes Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). How to amend taxes Your basis for depreciating the new car is $27,500, the same as if you traded the old car. How to amend taxes Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. How to amend taxes The first is an exchange of like-kind property. How to amend taxes The second is personal-use property on which gain is recognized and loss is not recognized. How to amend taxes First, figure your adjusted basis in the property as if you transferred two separate properties. How to amend taxes Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. How to amend taxes Deduct the depreciation you took or could have taken from the adjusted basis of the business part. How to amend taxes Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. How to amend taxes The business part of the property is permitted to be exchanged tax free. How to amend taxes However, you must recognize any gain from the exchange of the nonbusiness part. How to amend taxes You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. How to amend taxes The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. How to amend taxes If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. How to amend taxes For more information, see Publication 523. How to amend taxes Trade of car used partly in business. How to amend taxes   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. How to amend taxes   For information on figuring your basis for depreciation, see Publication 463. How to amend taxes Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. How to amend taxes However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. How to amend taxes This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. How to amend taxes If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. How to amend taxes Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. How to amend taxes For more information on these bonds, see Publication 550. How to amend taxes At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. How to amend taxes For more information, see Publication 504, Divorced or Separated Individuals. How to amend taxes Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. How to amend taxes FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. How to amend taxes Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. How to amend taxes Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). How to amend taxes If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. How to amend taxes Example. How to amend taxes You received an acre of land as a gift. How to amend taxes At the time of the gift, the land had an FMV of $8,000. How to amend taxes The donor's adjusted basis was $10,000. How to amend taxes After you received the land, no events occurred to increase or decrease your basis. How to amend taxes If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. How to amend taxes If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. How to amend taxes If the sales price is between $8,000 and $10,000, you have neither gain nor loss. How to amend taxes For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. How to amend taxes If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. How to amend taxes Business property. How to amend taxes   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. How to amend taxes FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. How to amend taxes Increase your basis by all or part of any gift tax paid, depending on the date of the gift. How to amend taxes Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. How to amend taxes See Adjusted Basis earlier. How to amend taxes Gift received before 1977. How to amend taxes   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. How to amend taxes However, do not increase your basis above the FMV of the gift at the time it was given to you. How to amend taxes Example 1. How to amend taxes You were given a house in 1976 with an FMV of $21,000. How to amend taxes The donor's adjusted basis was $20,000. How to amend taxes The donor paid a gift tax of $500. How to amend taxes Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. How to amend taxes Example 2. How to amend taxes If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. How to amend taxes This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. How to amend taxes Gift received after 1976. How to amend taxes   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. How to amend taxes Figure the increase by multiplying the gift tax paid by a fraction. How to amend taxes The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. How to amend taxes   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. How to amend taxes The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. How to amend taxes For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. How to amend taxes Example. How to amend taxes In 2010, you received a gift of property from your mother that had an FMV of $50,000. How to amend taxes Her adjusted basis was $20,000. How to amend taxes The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). How to amend taxes She paid a gift tax of $9,000. How to amend taxes Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . How to amend taxes 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. How to amend taxes See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. How to amend taxes If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. How to amend taxes The FMV of the property at the date of the individual's death. How to amend taxes The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. How to amend taxes For information on the alternate valuation date, see the Instructions for Form 706. How to amend taxes The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. How to amend taxes This method is discussed later. How to amend taxes The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. How to amend taxes For information on a qualified conservation easement, see the Instructions for Form 706. How to amend taxes If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. How to amend taxes For more information, see the Instructions for Form 706. How to amend taxes Appreciated property. How to amend taxes   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. How to amend taxes Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. How to amend taxes Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. How to amend taxes Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. How to amend taxes When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. How to amend taxes For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. How to amend taxes For example, you and your spouse owned community property that had a basis of $80,000. How to amend taxes When your spouse died, half the FMV of the community interest was includible in your spouse's estate. How to amend taxes The FMV of the community interest was $100,000. How to amend taxes The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). How to amend taxes The basis of the other half to your spouse's heirs is also $50,000. How to amend taxes For more information on community property, see Publication 555, Community Property. How to amend taxes Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. How to amend taxes Example. How to amend taxes John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. How to amend taxes John furnished two-thirds of the purchase price and Jim furnished one-third. How to amend taxes Depreciation deductions allowed before John's death were $12,000. How to amend taxes Under local law, each had a half interest in the income from the property. How to amend taxes At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. How to amend taxes Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. How to amend taxes This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. How to amend taxes If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. How to amend taxes Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. How to amend taxes It does not matter how much each spouse contributed to the purchase price. How to amend taxes Also, it does not matter which spouse dies first. How to amend taxes A qualified joint interest is any interest in property held by husband and wife as either of the following. How to amend taxes Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. How to amend taxes Basis. How to amend taxes   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. How to amend taxes Decrease the cost by any deductions allowed to you for depreciation and depletion. How to amend taxes Increase the reduced cost by your basis in the half you inherited. How to amend taxes Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. How to amend taxes If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. How to amend taxes If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. How to amend taxes Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. How to amend taxes Special-use valuation. How to amend taxes   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. How to amend taxes Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. How to amend taxes Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. How to amend taxes Figure all FMVs without regard to the special-use valuation. How to amend taxes   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. How to amend taxes This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. How to amend taxes   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. How to amend taxes If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. How to amend taxes The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. How to amend taxes   You make the election by filing with Form 706-A a statement that does all of the following. How to amend taxes Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. How to amend taxes   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. How to amend taxes Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. How to amend taxes An example of changing property held for personal use to business use would be renting out your former main home. How to amend taxes Basis for depreciation. How to amend taxes   The basis for depreciation is the lesser of the following amounts. How to amend taxes The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. How to amend taxes Example. How to amend taxes Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. How to amend taxes You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. How to amend taxes Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. How to amend taxes Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). How to amend taxes On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. How to amend taxes The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). How to amend taxes Sale of property. How to amend taxes   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. How to amend taxes Gain. How to amend taxes   The basis for figuring a gain is your adjusted basis when you sell the property. How to amend taxes Example. How to amend taxes Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. How to amend taxes Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). How to amend taxes Loss. How to amend taxes   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. How to amend taxes Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. How to amend taxes Example. How to amend taxes Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. How to amend taxes In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. How to amend taxes Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). How to amend taxes How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. How to amend taxes By selecting the method that is best for you, you will have quick and easy access to tax help. How to amend taxes Contacting your Taxpayer Advocate. How to amend taxes   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. How to amend taxes We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. How to amend taxes Here are seven things every taxpayer should know about TAS. How to amend taxes TAS is your voice at the IRS. How to amend taxes Our service is free, confidential, and tailored to meet your needs. How to amend taxes You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. How to amend taxes We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. How to amend taxes This includes businesses as well as individuals. How to amend taxes Our employees know the IRS and how to navigate it. How to amend taxes If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. How to amend taxes We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. How to amend taxes You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. How to amend taxes irs. How to amend taxes gov/advocate. How to amend taxes You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. How to amend taxes You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. How to amend taxes taxtoolkit. How to amend taxes irs. How to amend taxes gov. How to amend taxes You can get updates on hot tax topics by visiting our YouTube channel at www. How to amend taxes youtube. How to amend taxes com/tasnta and our Facebook page at www. How to amend taxes facebook. How to amend taxes com/YourVoiceAtIRS, or by following our tweets at www. How to amend taxes twitter. How to amend taxes com/YourVoiceAtIRS. How to amend taxes Low Income Taxpayer Clinics (LITCs). How to amend taxes   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. How to amend taxes LITCs are independent from the IRS. How to amend taxes Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. How to amend taxes If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. How to amend taxes For more information, see Publication 4134, Low Income Taxpayer Clinic List. How to amend taxes This publication is available at IRS. How to amend taxes gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. How to amend taxes Free tax services. How to amend taxes   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. How to amend taxes Learn about free tax information from the IRS, including publications, services, and education and assistance programs. How to amend taxes The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. How to amend taxes The majority of the information and services listed in this publication are available to you free of charge. How to amend taxes If there is a fee associated with a resource or service, it is listed in the publication. How to amend taxes   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d
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The How To Amend Taxes

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