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Income Tax Forms 2012

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Income Tax Forms 2012

Income tax forms 2012 12. Income tax forms 2012   Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Income tax forms 2012 Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Income tax forms 2012 Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Income tax forms 2012 Method 2. Income tax forms 2012 RoyaltiesDepletion. Income tax forms 2012 Coal and iron ore. Income tax forms 2012 Sale of property interest. Income tax forms 2012 Part of future production sold. Income tax forms 2012 Unemployment BenefitsTypes of unemployment compensation. Income tax forms 2012 Governmental program. Income tax forms 2012 Repayment of unemployment compensation. Income tax forms 2012 Tax withholding. Income tax forms 2012 Repayment of benefits. Income tax forms 2012 Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Income tax forms 2012 Deduction for costs involved in unlawful discrimination suits. Income tax forms 2012 Energy conservation measure. Income tax forms 2012 Dwelling unit. Income tax forms 2012 Current income required to be distributed. Income tax forms 2012 Current income not required to be distributed. Income tax forms 2012 How to report. Income tax forms 2012 Losses. Income tax forms 2012 Grantor trust. Income tax forms 2012 Nonemployee compensation. Income tax forms 2012 Corporate director. Income tax forms 2012 Personal representatives. Income tax forms 2012 Manager of trade or business for bankruptcy estate. Income tax forms 2012 Notary public. Income tax forms 2012 Election precinct official. Income tax forms 2012 Difficulty-of-care payments. Income tax forms 2012 Maintaining space in home. Income tax forms 2012 Reporting taxable payments. Income tax forms 2012 Lotteries and raffles. Income tax forms 2012 Form W-2G. Income tax forms 2012 Reporting winnings and recordkeeping. Income tax forms 2012 Inherited pension or IRA. Income tax forms 2012 Employee awards or bonuses. Income tax forms 2012 Pulitzer, Nobel, and similar prizes. Income tax forms 2012 Payment for services. Income tax forms 2012 VA payments. Income tax forms 2012 Prizes. Income tax forms 2012 Strike and lockout benefits. Income tax forms 2012 Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. Income tax forms 2012 Some items, however, are only partly excluded from income. Income tax forms 2012 This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. Income tax forms 2012 Income that is taxable must be reported on your tax return and is subject to tax. Income tax forms 2012 Income that is nontaxable may have to be shown on your tax return but is not taxable. Income tax forms 2012 This chapter begins with discussions of the following income items. Income tax forms 2012 Bartering. Income tax forms 2012 Canceled debts. Income tax forms 2012 Sales parties at which you are the host or hostess. Income tax forms 2012 Life insurance proceeds. Income tax forms 2012 Partnership income. Income tax forms 2012 S Corporation income. Income tax forms 2012 Recoveries (including state income tax refunds). Income tax forms 2012 Rents from personal property. Income tax forms 2012 Repayments. Income tax forms 2012 Royalties. Income tax forms 2012 Unemployment benefits. Income tax forms 2012 Welfare and other public assistance benefits. Income tax forms 2012 These discussions are followed by brief discussions of other income items. Income tax forms 2012 Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. Income tax forms 2012 You must include in your income, at the time received, the fair market value of property or services you receive in bartering. Income tax forms 2012 If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. Income tax forms 2012 Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Income tax forms 2012 However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. Income tax forms 2012 Example 1. Income tax forms 2012 You are a self-employed attorney who performs legal services for a client, a small corporation. Income tax forms 2012 The corporation gives you shares of its stock as payment for your services. Income tax forms 2012 You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. Income tax forms 2012 Example 2. Income tax forms 2012 You are self-employed and a member of a barter club. Income tax forms 2012 The club uses “credit units” as a means of exchange. Income tax forms 2012 It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. Income tax forms 2012 The club subtracts credit units from your account when you receive goods or services from other members. Income tax forms 2012 You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. Income tax forms 2012 Example 3. Income tax forms 2012 You own a small apartment building. Income tax forms 2012 In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. Income tax forms 2012 You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. Income tax forms 2012 Form 1099-B from barter exchange. Income tax forms 2012   If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. Income tax forms 2012 It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. Income tax forms 2012 The IRS also will receive a copy of Form 1099-B. Income tax forms 2012 Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. Income tax forms 2012 You have no income from the canceled debt if it is intended as a gift to you. Income tax forms 2012 A debt includes any indebtedness for which you are liable or which attaches to property you hold. Income tax forms 2012 If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. Income tax forms 2012 If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). Income tax forms 2012 Form 1099-C. Income tax forms 2012   If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Income tax forms 2012 The amount of the canceled debt is shown in box 2. Income tax forms 2012 Interest included in canceled debt. Income tax forms 2012   If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. Income tax forms 2012 Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. Income tax forms 2012 See Deductible debt under Exceptions, later. Income tax forms 2012   If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. Income tax forms 2012 If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). Income tax forms 2012 Discounted mortgage loan. Income tax forms 2012   If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. Income tax forms 2012 You must include the canceled amount in your income. Income tax forms 2012 Mortgage relief upon sale or other disposition. Income tax forms 2012   If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. Income tax forms 2012 To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. Income tax forms 2012 Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. Income tax forms 2012    You may be able to exclude part of the mortgage relief on your principal residence. Income tax forms 2012 See Excluded debt, later. Income tax forms 2012   If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. Income tax forms 2012 You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Income tax forms 2012 Report any gain on nonbusiness property as a capital gain. Income tax forms 2012   See Publication 4681 for more information. Income tax forms 2012 Stockholder debt. Income tax forms 2012   If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. Income tax forms 2012 For more information, see Publication 542, Corporations. Income tax forms 2012   If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. Income tax forms 2012 This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. Income tax forms 2012 Repayment of canceled debt. Income tax forms 2012   If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. Income tax forms 2012 You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. Income tax forms 2012 The statute of limitations generally does not end until 3 years after the due date of your original return. Income tax forms 2012 Exceptions There are several exceptions to the inclusion of canceled debt in income. Income tax forms 2012 These are explained next. Income tax forms 2012 Student loans. Income tax forms 2012   Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. Income tax forms 2012   You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. Income tax forms 2012 To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). Income tax forms 2012   A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. Income tax forms 2012 Education loan repayment assistance. Income tax forms 2012   Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. Income tax forms 2012    The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. Income tax forms 2012 If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. Income tax forms 2012 See Form 1040X and its instructions for details on filing. Income tax forms 2012 Deductible debt. Income tax forms 2012   You do not have income from the cancellation of a debt if your payment of the debt would be deductible. Income tax forms 2012 This exception applies only if you use the cash method of accounting. Income tax forms 2012 For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. Income tax forms 2012 Price reduced after purchase. Income tax forms 2012   In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. Income tax forms 2012 The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. Income tax forms 2012 Excluded debt. Income tax forms 2012   Do not include a canceled debt in your gross income in the following situations. Income tax forms 2012 The debt is canceled in a bankruptcy case under title 11 of the U. Income tax forms 2012 S. Income tax forms 2012 Code. Income tax forms 2012 See Publication 908, Bankruptcy Tax Guide. Income tax forms 2012 The debt is canceled when you are insolvent. Income tax forms 2012 However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. Income tax forms 2012 See Publication 908. Income tax forms 2012 The debt is qualified farm debt and is canceled by a qualified person. Income tax forms 2012 See chapter 3 of Publication 225, Farmer's Tax Guide. Income tax forms 2012 The debt is qualified real property business debt. Income tax forms 2012 See chapter 5 of Publication 334. Income tax forms 2012 The cancellation is intended as a gift. Income tax forms 2012 The debt is qualified principal residence indebtedness. Income tax forms 2012 See Publication 525 for additional information. Income tax forms 2012 Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. Income tax forms 2012 You must report this item as income at its fair market value. Income tax forms 2012 Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. Income tax forms 2012 These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. Income tax forms 2012 For more information about the 50% limit for meal and entertainment expenses, see chapter 26. Income tax forms 2012 Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Income tax forms 2012 This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Income tax forms 2012 However, interest income received as a result of life insurance proceeds may be taxable. Income tax forms 2012 Proceeds not received in installments. Income tax forms 2012   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Income tax forms 2012 If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Income tax forms 2012 Proceeds received in installments. Income tax forms 2012   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Income tax forms 2012   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Income tax forms 2012 Include anything over this excluded part in your income as interest. Income tax forms 2012 Surviving spouse. Income tax forms 2012   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. Income tax forms 2012 If you remarry, you can continue to take the exclusion. Income tax forms 2012 Surrender of policy for cash. Income tax forms 2012   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Income tax forms 2012 In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Income tax forms 2012    You should receive a Form 1099-R showing the total proceeds and the taxable part. Income tax forms 2012 Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. Income tax forms 2012 More information. Income tax forms 2012   For more information, see Life Insurance Proceeds in Publication 525. Income tax forms 2012 Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Income tax forms 2012 Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Income tax forms 2012 To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. Income tax forms 2012 Include the part of the lump sum payment that is more than your cost in your income. Income tax forms 2012 Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. Income tax forms 2012 Viatical settlement. Income tax forms 2012   This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. Income tax forms 2012 A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. Income tax forms 2012 Exclusion for terminal illness. Income tax forms 2012    Accelerated death benefits are fully excludable if the insured is a terminally ill individual. Income tax forms 2012 This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. Income tax forms 2012 Exclusion for chronic illness. Income tax forms 2012    If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Income tax forms 2012 Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. Income tax forms 2012 This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. Income tax forms 2012 For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. Income tax forms 2012 Exception. Income tax forms 2012   The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. Income tax forms 2012 Form 8853. Income tax forms 2012   To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Income tax forms 2012 You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. Income tax forms 2012 Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. Income tax forms 2012 For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. Income tax forms 2012 For more information, see Publication 559, Survivors, Executors, and Administrators. Income tax forms 2012 Partnership Income A partnership generally is not a taxable entity. Income tax forms 2012 The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. Income tax forms 2012 Schedule K-1 (Form 1065). Income tax forms 2012    Although a partnership generally pays no tax, it must file an information return on Form 1065, U. Income tax forms 2012 S. Income tax forms 2012 Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. Income tax forms 2012 In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. Income tax forms 2012 Keep Schedule K-1 (Form 1065) for your records. Income tax forms 2012 Do not attach it to your Form 1040, unless you are specifically required to do so. Income tax forms 2012 For more information on partnerships, see Publication 541, Partnerships. Income tax forms 2012 Qualified joint venture. Income tax forms 2012   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Income tax forms 2012 To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Income tax forms 2012 For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. Income tax forms 2012 S Corporation Income In most cases, an S corporation does not pay tax on its income. Income tax forms 2012 Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. Income tax forms 2012 Schedule K-1 (Form 1120S). Income tax forms 2012   An S corporation must file a return on Form 1120S, U. Income tax forms 2012 S. Income tax forms 2012 Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. Income tax forms 2012 In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. Income tax forms 2012 Keep Schedule K-1 (Form 1120S) for your records. Income tax forms 2012 Do not attach it to your Form 1040, unless you are specifically required to do so. Income tax forms 2012 For more information on S corporations and their shareholders, see the Instructions for Form 1120S. Income tax forms 2012 Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. Income tax forms 2012 The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). Income tax forms 2012 You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. Income tax forms 2012 Tax benefit rule. Income tax forms 2012   You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. Income tax forms 2012 For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. Income tax forms 2012 For more information, see Publication 525. Income tax forms 2012 Federal income tax refund. Income tax forms 2012   Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. Income tax forms 2012 State tax refund. Income tax forms 2012   If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. Income tax forms 2012 The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. Income tax forms 2012 The IRS also will receive a copy of the Form 1099-G. Income tax forms 2012 If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. Income tax forms 2012 See Publication 525 for when you must use another worksheet. Income tax forms 2012   If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. Income tax forms 2012 For examples, see Publication 525. Income tax forms 2012 Mortgage interest refund. Income tax forms 2012    If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. Income tax forms 2012 Do not subtract the refund amount from the interest you paid in 2013. Income tax forms 2012 You may have to include it in your income under the rules explained in the following discussions. Income tax forms 2012 Interest on recovery. Income tax forms 2012   Interest on any of the amounts you recover must be reported as interest income in the year received. Income tax forms 2012 For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. Income tax forms 2012 Recovery and expense in same year. Income tax forms 2012   If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. Income tax forms 2012 Recovery for 2 or more years. Income tax forms 2012   If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. Income tax forms 2012 This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. Income tax forms 2012 For information on how to compute the allocation, see Recoveries in Publication 525. Income tax forms 2012 Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. Income tax forms 2012 Where to report. Income tax forms 2012   Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. Income tax forms 2012 You cannot use Form 1040A or Form 1040EZ. Income tax forms 2012 Standard deduction limit. Income tax forms 2012   You generally are allowed to claim the standard deduction if you do not itemize your deductions. Income tax forms 2012 Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). Income tax forms 2012 If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. Income tax forms 2012 Example. Income tax forms 2012 For 2012, you filed a joint return. Income tax forms 2012 Your taxable income was $60,000 and you were not entitled to any tax credits. Income tax forms 2012 Your standard deduction was $11,900, and you had itemized deductions of $14,000. Income tax forms 2012 In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. Income tax forms 2012 The difference between the state and local income tax you deducted and your local general sales tax was more than $400. Income tax forms 2012 Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. Income tax forms 2012 Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. Income tax forms 2012 Standard deduction for earlier years. Income tax forms 2012   To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. Income tax forms 2012 Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. Income tax forms 2012 Example. Income tax forms 2012 You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. Income tax forms 2012 Your itemized deductions were $12,350. Income tax forms 2012 The standard deduction that you could have claimed was $11,900. Income tax forms 2012 In 2013, you recovered $2,100 of your 2012 itemized deductions. Income tax forms 2012 None of the recoveries were more than the actual deductions for 2012. Income tax forms 2012 Include $450 of the recoveries in your 2013 income. Income tax forms 2012 This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). Income tax forms 2012 Recovery limited to deduction. Income tax forms 2012   You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. Income tax forms 2012 The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. Income tax forms 2012 Example. Income tax forms 2012 During 2012 you paid $1,700 for medical expenses. Income tax forms 2012 From this amount you subtracted $1,500, which was 7. Income tax forms 2012 5% of your adjusted gross income. Income tax forms 2012 Your actual medical expense deduction was $200. Income tax forms 2012 In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. Income tax forms 2012 The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. Income tax forms 2012 Other recoveries. Income tax forms 2012   See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. Income tax forms 2012 Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. Income tax forms 2012 In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. Income tax forms 2012 See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. Income tax forms 2012 Reporting business income and expenses. Income tax forms 2012    If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 The form instructions have information on how to complete them. Income tax forms 2012 Reporting nonbusiness income. Income tax forms 2012   If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. Income tax forms 2012 List the type and amount of the income on the dotted line next to line 21. Income tax forms 2012 Reporting nonbusiness expenses. Income tax forms 2012   If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. Income tax forms 2012 Also enter the amount and “PPR” on the dotted line next to line 36. Income tax forms 2012   If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. Income tax forms 2012 See Activity not for profit , under Other Income, later. Income tax forms 2012 Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Income tax forms 2012 Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Income tax forms 2012 Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. Income tax forms 2012 Type of deduction. Income tax forms 2012   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Income tax forms 2012 You generally deduct the repayment on the same form or schedule on which you previously reported it as income. Income tax forms 2012 For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Income tax forms 2012 If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). Income tax forms 2012 If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). Income tax forms 2012 Repaid social security benefits. Income tax forms 2012   If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. Income tax forms 2012 Repayment of $3,000 or less. Income tax forms 2012   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Income tax forms 2012 If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. Income tax forms 2012 Repayment over $3,000. Income tax forms 2012   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). Income tax forms 2012 However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. Income tax forms 2012 This means that at the time you included the income, it appeared that you had an unrestricted right to it. Income tax forms 2012 If you qualify for this choice, figure your tax under both methods and compare the results. Income tax forms 2012 Use the method (deduction or credit) that results in less tax. Income tax forms 2012 When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Income tax forms 2012 Each instance of repayment is not considered separately. Income tax forms 2012 Method 1. Income tax forms 2012   Figure your tax for 2013 claiming a deduction for the repaid amount. Income tax forms 2012 If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. Income tax forms 2012 Method 2. Income tax forms 2012   Figure your tax for 2013 claiming a credit for the repaid amount. Income tax forms 2012 Follow these steps. Income tax forms 2012 Figure your tax for 2013 without deducting the repaid amount. Income tax forms 2012 Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Income tax forms 2012 Subtract the tax in (2) from the tax shown on your return for the earlier year. Income tax forms 2012 This is the credit. Income tax forms 2012 Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). Income tax forms 2012   If method 1 results in less tax, deduct the amount repaid. Income tax forms 2012 If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. Income tax forms 2012 R. Income tax forms 2012 C. Income tax forms 2012 1341” in the column to the right of line 71. Income tax forms 2012   An example of this computation can be found in Publication 525. Income tax forms 2012 Repaid wages subject to social security and Medicare taxes. Income tax forms 2012   If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. Income tax forms 2012 If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. Income tax forms 2012 File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Income tax forms 2012 Repaid wages subject to Additional Medicare Tax. Income tax forms 2012   Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. Income tax forms 2012 If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. Income tax forms 2012 To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. Income tax forms 2012 S. Income tax forms 2012 Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. Income tax forms 2012 See the Instructions for Form 1040X. Income tax forms 2012 Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. Income tax forms 2012 In most cases you report royalties in Part I of Schedule E (Form 1040). Income tax forms 2012 However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. Income tax forms 2012 , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 Copyrights and patents. Income tax forms 2012   Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Income tax forms 2012 Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. Income tax forms 2012 Oil, gas, and minerals. Income tax forms 2012   Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. Income tax forms 2012 The royalties are based on units, such as barrels, tons, etc. Income tax forms 2012 , and are paid to you by a person or company who leases the property from you. Income tax forms 2012 Depletion. Income tax forms 2012   If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. Income tax forms 2012 For information on this subject, see chapter 9 of Publication 535. Income tax forms 2012 Coal and iron ore. Income tax forms 2012   Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. Income tax forms 2012 For information about gain or loss from the sale of coal and iron ore, see Publication 544. Income tax forms 2012 Sale of property interest. Income tax forms 2012   If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. Income tax forms 2012 Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). Income tax forms 2012 For more information on selling section 1231 property, see chapter 3 of Publication 544. Income tax forms 2012   If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. Income tax forms 2012 Part of future production sold. Income tax forms 2012   If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Income tax forms 2012 Do not include it in your income or take depletion based on it. Income tax forms 2012   When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. Income tax forms 2012 Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. Income tax forms 2012 Unemployment compensation. Income tax forms 2012   You must include in income all unemployment compensation you receive. Income tax forms 2012 You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. Income tax forms 2012 In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Income tax forms 2012 Types of unemployment compensation. Income tax forms 2012   Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. Income tax forms 2012 It includes the following benefits. Income tax forms 2012 Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. Income tax forms 2012 State unemployment insurance benefits. Income tax forms 2012 Railroad unemployment compensation benefits. Income tax forms 2012 Disability payments from a government program paid as a substitute for unemployment compensation. Income tax forms 2012 (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. Income tax forms 2012 See chapter 5 for more information. Income tax forms 2012 ) Trade readjustment allowances under the Trade Act of 1974. Income tax forms 2012 Unemployment assistance under the Disaster Relief and Emergency Assistance Act. Income tax forms 2012 Unemployment assistance under the Airline Deregulation Act of 1974 Program. Income tax forms 2012 Governmental program. Income tax forms 2012   If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. Income tax forms 2012 If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. Income tax forms 2012 Repayment of unemployment compensation. Income tax forms 2012   If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Income tax forms 2012 On the dotted line next to your entry enter “Repaid” and the amount you repaid. Income tax forms 2012 If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. Income tax forms 2012 If the amount is more than $3,000, see Repayments , earlier. Income tax forms 2012 Tax withholding. Income tax forms 2012   You can choose to have federal income tax withheld from your unemployment compensation. Income tax forms 2012 To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Income tax forms 2012 Tax will be withheld at 10% of your payment. Income tax forms 2012    If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. Income tax forms 2012 If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Income tax forms 2012 For more information on estimated tax, see chapter 4. Income tax forms 2012 Supplemental unemployment benefits. Income tax forms 2012   Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. Income tax forms 2012 They are taxable as wages and are subject to withholding for income tax. Income tax forms 2012 They may be subject to social security and Medicare taxes. Income tax forms 2012 For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. Income tax forms 2012 Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Income tax forms 2012 Repayment of benefits. Income tax forms 2012   You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. Income tax forms 2012 If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. Income tax forms 2012 If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. Income tax forms 2012   Deduct the repayment in the later year as an adjustment to gross income on Form 1040. Income tax forms 2012 (You cannot use Form 1040A or Form 1040EZ. Income tax forms 2012 ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. Income tax forms 2012 If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. Income tax forms 2012 For more information on this, see Repayments , earlier. Income tax forms 2012 Private unemployment fund. Income tax forms 2012   Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Income tax forms 2012 Report the taxable amount on Form 1040, line 21. Income tax forms 2012 Payments by a union. Income tax forms 2012   Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. Income tax forms 2012 However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. Income tax forms 2012 Guaranteed annual wage. Income tax forms 2012   Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Income tax forms 2012 Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Income tax forms 2012 State employees. Income tax forms 2012   Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. Income tax forms 2012 Although the payments are fully taxable, do not report them as unemployment compensation. Income tax forms 2012 Report these payments on Form 1040, line 21. Income tax forms 2012 Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. Income tax forms 2012 Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Income tax forms 2012 Do not deduct medical expenses that are reimbursed by such a fund. Income tax forms 2012 You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. Income tax forms 2012 Reemployment Trade Adjustment Assistance (RTAA) payments. Income tax forms 2012   RTAA payments received from a state must be included in your income. Income tax forms 2012 The state must send you Form 1099-G to advise you of the amount you should include in income. Income tax forms 2012 The amount should be reported on Form 1040, line 21. Income tax forms 2012 Persons with disabilities. Income tax forms 2012   If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. Income tax forms 2012 However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Income tax forms 2012 Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. Income tax forms 2012 Disaster relief grants. Income tax forms 2012    Do not include post-disaster grants received under the Robert T. Income tax forms 2012 Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. Income tax forms 2012 Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. Income tax forms 2012 If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. Income tax forms 2012 See Recoveries , earlier. Income tax forms 2012 Unemployment assistance payments under the Act are taxable unemployment compensation. Income tax forms 2012 See Unemployment compensation under Unemployment Benefits, earlier. Income tax forms 2012 Disaster relief payments. Income tax forms 2012   You can exclude from income any amount you receive that is a qualified disaster relief payment. Income tax forms 2012 A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. Income tax forms 2012 You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. Income tax forms 2012 The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. Income tax forms 2012   A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. Income tax forms 2012   For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. Income tax forms 2012 Disaster mitigation payments. Income tax forms 2012   You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. Income tax forms 2012 Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. Income tax forms 2012 However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. Income tax forms 2012 They are paid to you through state and local governments based on the provisions of the Robert T. Income tax forms 2012 Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. Income tax forms 2012   You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. Income tax forms 2012 Home Affordable Modification Program (HAMP). Income tax forms 2012   If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. Income tax forms 2012 Mortgage assistance payments under section 235 of the National Housing Act. Income tax forms 2012   Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. Income tax forms 2012 Interest paid for the homeowner under the mortgage assistance program cannot be deducted. Income tax forms 2012 Medicare. Income tax forms 2012   Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. Income tax forms 2012 This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). Income tax forms 2012 Old-age, survivors, and disability insurance benefits (OASDI). Income tax forms 2012   Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. Income tax forms 2012 This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. Income tax forms 2012 Nutrition Program for the Elderly. Income tax forms 2012    Food benefits you receive under the Nutrition Program for the Elderly are not taxable. Income tax forms 2012 If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. Income tax forms 2012 Payments to reduce cost of winter energy. Income tax forms 2012   Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. Income tax forms 2012 Other Income The following brief discussions are arranged in alphabetical order. Income tax forms 2012 Other income items briefly discussed below are referenced to publications which provide more topical information. Income tax forms 2012 Activity not for profit. Income tax forms 2012   You must include on your return income from an activity from which you do not expect to make a profit. Income tax forms 2012 An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Income tax forms 2012 Enter this income on Form 1040, line 21. Income tax forms 2012 Deductions for expenses related to the activity are limited. Income tax forms 2012 They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). Income tax forms 2012 See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. Income tax forms 2012 Alaska Permanent Fund dividend. Income tax forms 2012   If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Income tax forms 2012 The state of Alaska sends each recipient a document that shows the amount of the payment with the check. Income tax forms 2012 The amount also is reported to IRS. Income tax forms 2012 Alimony. Income tax forms 2012   Include in your income on Form 1040, line 11, any alimony payments you receive. Income tax forms 2012 Amounts you receive for child support are not income to you. Income tax forms 2012 Alimony and child support payments are discussed in chapter 18. Income tax forms 2012 Bribes. Income tax forms 2012   If you receive a bribe, include it in your income. Income tax forms 2012 Campaign contributions. Income tax forms 2012   These contributions are not income to a candidate unless they are diverted to his or her personal use. Income tax forms 2012 To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. Income tax forms 2012 However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. Income tax forms 2012 S. Income tax forms 2012 Income Tax Return for Certain Political Organizations. Income tax forms 2012 Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. Income tax forms 2012 Car pools. Income tax forms 2012   Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. Income tax forms 2012 These amounts are considered reimbursement for your expenses. Income tax forms 2012 However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. Income tax forms 2012 Cash rebates. Income tax forms 2012   A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. Income tax forms 2012 Example. Income tax forms 2012 You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. Income tax forms 2012 The $2,000 is not income to you. Income tax forms 2012 Your basis in the car is $22,000. Income tax forms 2012 This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. Income tax forms 2012 Casualty insurance and other reimbursements. Income tax forms 2012   You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. Income tax forms 2012 See chapter 25 for more information. Income tax forms 2012 Child support payments. Income tax forms 2012   You should not report these payments on your return. Income tax forms 2012 See chapter 18 for more information. Income tax forms 2012 Court awards and damages. Income tax forms 2012   To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Income tax forms 2012 The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Income tax forms 2012 Include the following as ordinary income. Income tax forms 2012 Interest on any award. Income tax forms 2012 Compensation for lost wages or lost profits in most cases. Income tax forms 2012 Punitive damages, in most cases. Income tax forms 2012 It does not matter if they relate to a physical injury or physical sickness. Income tax forms 2012 Amounts received in settlement of pension rights (if you did not contribute to the plan). Income tax forms 2012 Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. Income tax forms 2012 Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. Income tax forms 2012 Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. Income tax forms 2012   Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). Income tax forms 2012 Emotional distress. Income tax forms 2012   Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Income tax forms 2012 Do not include them in your income. Income tax forms 2012   If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Income tax forms 2012 Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. Income tax forms 2012 Deduction for costs involved in unlawful discrimination suits. Income tax forms 2012   You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. Income tax forms 2012 For more information, see Publication 525. Income tax forms 2012 Credit card insurance. Income tax forms 2012   In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. Income tax forms 2012 These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. Income tax forms 2012 Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. Income tax forms 2012 Down payment assistance. Income tax forms 2012   If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. Income tax forms 2012 If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. Income tax forms 2012 If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. Income tax forms 2012 Employment agency fees. Income tax forms 2012   If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. Income tax forms 2012 However, if you pay it and your employer reimburses you for it, it is includible in your income. Income tax forms 2012 Energy conservation subsidies. Income tax forms 2012   You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. Income tax forms 2012 Energy conservation measure. Income tax forms 2012   This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. Income tax forms 2012 Dwelling unit. Income tax forms 2012   This includes a house, apartment, condominium, mobile home, boat, or similar property. Income tax forms 2012 If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. Income tax forms 2012 Estate and trust income. Income tax forms 2012    An estate or trust, unlike a partnership, may have to pay federal income tax. Income tax forms 2012 If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. Income tax forms 2012 However, there is never a double tax. Income tax forms 2012 Estates and trusts file their returns on Form 1041, U. Income tax forms 2012 S. Income tax forms 2012 Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). Income tax forms 2012 Current income required to be distributed. Income tax forms 2012   If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. Income tax forms 2012 Current income not required to be distributed. Income tax forms 2012    If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. Income tax forms 2012 How to report. Income tax forms 2012   Treat each item of income the same way that the estate or trust would treat it. Income tax forms 2012 For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. Income tax forms 2012 The same rule applies to distributions of tax-exempt interest and capital gains. Income tax forms 2012   The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. Income tax forms 2012 Losses. Income tax forms 2012   Losses of estates and trusts generally are not deductible by the beneficiaries. Income tax forms 2012 Grantor trust. Income tax forms 2012   Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. Income tax forms 2012 (The grantor is the one who transferred property to the trust. Income tax forms 2012 ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. Income tax forms 2012   Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. Income tax forms 2012 Expenses paid by another. Income tax forms 2012   If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. Income tax forms 2012 But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. Income tax forms 2012 Fees for services. Income tax forms 2012   Include all fees for your services in your income. Income tax forms 2012 Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. Income tax forms 2012 Nonemployee compensation. Income tax forms 2012   If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. Income tax forms 2012 You may need to report your fees as self-employment income. Income tax forms 2012 See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. Income tax forms 2012 Corporate director. Income tax forms 2012   Corporate director fees are self-employment income. Income tax forms 2012 Report these payments on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 Personal representatives. Income tax forms 2012   All personal representatives must include in their gross income fees paid to them from an estate. Income tax forms 2012 If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. Income tax forms 2012 If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 The fee is not includible in income if it is waived. Income tax forms 2012 Manager of trade or business for bankruptcy estate. Income tax forms 2012   Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. Income tax forms 2012 Report this income on Form 1040, line 21. Income tax forms 2012 Notary public. Income tax forms 2012    Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 These payments are not subject to self-employment tax. Income tax forms 2012 See the separate instructions for Schedule SE (Form 1040) for details. Income tax forms 2012 Election precinct official. Income tax forms 2012    You should receive a Form W-2 showing payments for services performed as an election official or election worker. Income tax forms 2012 Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Income tax forms 2012 Foster care providers. Income tax forms 2012   Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. Income tax forms 2012 However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. Income tax forms 2012   A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. Income tax forms 2012 Difficulty-of-care payments. Income tax forms 2012   These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. Income tax forms 2012 A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. Income tax forms 2012   You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. Income tax forms 2012 Maintaining space in home. Income tax forms 2012   If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. Income tax forms 2012 Reporting taxable payments. Income tax forms 2012    If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. Income tax forms 2012 Report the payments on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. Income tax forms 2012 Found property. Income tax forms 2012   If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. Income tax forms 2012 Free tour. Income tax forms 2012   If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Income tax forms 2012 Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. Income tax forms 2012 You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. Income tax forms 2012 If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). Income tax forms 2012 Gambling winnings. Income tax forms 2012   You must include your gambling winnings in income on Form 1040, line 21. Income tax forms 2012 If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Income tax forms 2012 Lotteries and raffles. Income tax forms 2012   Winnings from lotteries and raffles are gambling winnings. Income tax forms 2012 In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. Income tax forms 2012    If you win a state lottery prize payable in installments, see Publication 525 for more information. Income tax forms 2012 Form W-2G. Income tax forms 2012   You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. Income tax forms 2012 Include the amount from box 1 on Form 1040, line 21. Income tax forms 2012 Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. Income tax forms 2012 Reporting winnings and recordkeeping. Income tax forms 2012   For more information on reporting gam
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The Income Tax Forms 2012

Income tax forms 2012 4. Income tax forms 2012   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Income tax forms 2012 Line of business. Income tax forms 2012 Examples. Income tax forms 2012 Improvement of business conditions. Income tax forms 2012 Exception for local legislation. Income tax forms 2012 De minimis exception. Income tax forms 2012 Grass roots lobbying. Income tax forms 2012 501(c)(7) - Social and Recreation ClubsLimited membership. Income tax forms 2012 Support. Income tax forms 2012 Facilities open to public. Income tax forms 2012 Gross receipts from nonmembership sources. Income tax forms 2012 Gross receipts. Income tax forms 2012 Nontraditional activities. Income tax forms 2012 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Income tax forms 2012 Losses and expenses. Income tax forms 2012 Distributions of proceeds. Income tax forms 2012 The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Income tax forms 2012 Perpetual care organization. Income tax forms 2012 Care of individual plots. Income tax forms 2012 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Income tax forms 2012 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Income tax forms 2012 Waiver of payment of income. Income tax forms 2012 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Income tax forms 2012 Section 501(c)(3) organizations are covered in chapter 3 of this publication. Income tax forms 2012 The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Income tax forms 2012 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Income tax forms 2012 The discussion that follows describes the information you must provide when applying. Income tax forms 2012 For application procedures, see chapter 1. Income tax forms 2012 To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Income tax forms 2012 In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Income tax forms 2012 If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Income tax forms 2012 See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Income tax forms 2012 Examples. Income tax forms 2012   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Income tax forms 2012 Nonprofit operation. Income tax forms 2012   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Income tax forms 2012 However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Income tax forms 2012 Social welfare. Income tax forms 2012   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Income tax forms 2012   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Income tax forms 2012 It therefore does not qualify as a section 501(c)(4) organization. Income tax forms 2012 Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Income tax forms 2012 However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Income tax forms 2012 Political activity. Income tax forms 2012   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Income tax forms 2012 However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Income tax forms 2012 See the discussion in chapter 2 under Political Organization Income Tax Return . Income tax forms 2012 Social or recreational activity. Income tax forms 2012   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Income tax forms 2012 Retirement benefit program. Income tax forms 2012   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Income tax forms 2012 It may qualify under another paragraph of section 501(c) depending on all the facts. Income tax forms 2012   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Income tax forms 2012 Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Income tax forms 2012 They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Income tax forms 2012 However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Income tax forms 2012 for more information. Income tax forms 2012 For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Income tax forms 2012 gov. Income tax forms 2012 Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Income tax forms 2012 Volunteer fire companies. Income tax forms 2012   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Income tax forms 2012   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Income tax forms 2012 In this event, your organization should file Form 1023. Income tax forms 2012 Homeowners' associations. Income tax forms 2012   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Income tax forms 2012 The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Income tax forms 2012 Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Income tax forms 2012 Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Income tax forms 2012   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Income tax forms 2012 It also must show that it does not engage in exterior maintenance of private homes. Income tax forms 2012   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Income tax forms 2012 Other organizations. Income tax forms 2012   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Income tax forms 2012 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Income tax forms 2012 You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Income tax forms 2012 In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Income tax forms 2012 Submit any additional information that may be required, as described in this section. Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Income tax forms 2012 However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Income tax forms 2012 For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Income tax forms 2012 Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Income tax forms 2012 To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Income tax forms 2012 In addition, no net earnings of the organization can inure to the benefit of any member. Income tax forms 2012 Composition of membership. Income tax forms 2012   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Income tax forms 2012 You must show in your application that your organization has the purposes described in the preceding paragraph. Income tax forms 2012 These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Income tax forms 2012 Benefits to members. Income tax forms 2012   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Income tax forms 2012 However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Income tax forms 2012   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Income tax forms 2012 gov. Income tax forms 2012 Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Income tax forms 2012 For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Income tax forms 2012 The term harvesting, in this case, includes fishing and related pursuits. Income tax forms 2012 Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Income tax forms 2012 When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Income tax forms 2012 The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Income tax forms 2012 The following list contains some examples of activities that show an agricultural or horticultural purpose. Income tax forms 2012 Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Income tax forms 2012 Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Income tax forms 2012 Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Income tax forms 2012 Guarding the purity of a specific breed of livestock. Income tax forms 2012 Encouraging improvements in the production of fish on privately owned fish farms. Income tax forms 2012 Negotiating with processors for the price to be paid to members for their crops. Income tax forms 2012 For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Income tax forms 2012 gov. Income tax forms 2012 501(c)(6) - Business Leagues, etc. Income tax forms 2012 If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Income tax forms 2012 For a discussion of the procedure to follow, see chapter 1. Income tax forms 2012 Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Income tax forms 2012 In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Income tax forms 2012 It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Income tax forms 2012 A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Income tax forms 2012 Trade associations and professional associations are considered business leagues. Income tax forms 2012 Chamber of commerce. Income tax forms 2012   A chamber of commerce usually is composed of the merchants and traders of a city. Income tax forms 2012 Board of trade. Income tax forms 2012   A board of trade often consists of persons engaged in similar lines of business. Income tax forms 2012 For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Income tax forms 2012   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Income tax forms 2012 Real estate board. Income tax forms 2012   A real estate board consists of members interested in improving the business conditions in the real estate field. Income tax forms 2012 It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Income tax forms 2012 Professional football leagues. Income tax forms 2012   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Income tax forms 2012 They are exempt whether or not they administer a pension fund for football players. Income tax forms 2012 General purpose. Income tax forms 2012   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Income tax forms 2012 It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Income tax forms 2012 Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Income tax forms 2012 Line of business. Income tax forms 2012   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Income tax forms 2012 It does not include a group composed of businesses that market a particular brand within an industry. Income tax forms 2012 Common business interest. Income tax forms 2012   A common business interest of all members of the organization must be established by the application documents. Income tax forms 2012 Examples. Income tax forms 2012   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Income tax forms 2012 Improvement of business conditions. Income tax forms 2012   Generally, this must be shown to be the purpose of the organization. Income tax forms 2012 This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Income tax forms 2012 Stock or commodity exchange. Income tax forms 2012   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Income tax forms 2012 Legislative activity. Income tax forms 2012   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Income tax forms 2012 Deduction not allowed for dues used for political or legislative activities. Income tax forms 2012   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Income tax forms 2012 Influencing legislation. Income tax forms 2012 Participating or intervening in a political campaign for, or against, any candidate for public office. Income tax forms 2012 Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Income tax forms 2012 Communicating directly with certain executive branch officials to try to influence their official actions or positions. Income tax forms 2012 See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Income tax forms 2012 Exception for local legislation. Income tax forms 2012   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Income tax forms 2012 Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Income tax forms 2012 De minimis exception. Income tax forms 2012   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Income tax forms 2012 Grass roots lobbying. Income tax forms 2012   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Income tax forms 2012 Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Income tax forms 2012 They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Income tax forms 2012   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Income tax forms 2012 gov. Income tax forms 2012 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Income tax forms 2012 In applying for recognition of exemption, you should submit the information described in this section. Income tax forms 2012 Also see chapter 1 for the procedures to follow. Income tax forms 2012 Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Income tax forms 2012 Discrimination prohibited. Income tax forms 2012   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Income tax forms 2012   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Income tax forms 2012 Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Income tax forms 2012 Private benefit prohibited. Income tax forms 2012   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Income tax forms 2012 For purposes of this requirement, it is not necessary that net earnings be actually distributed. Income tax forms 2012 Even undistributed earnings can benefit members. Income tax forms 2012 Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Income tax forms 2012 However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Income tax forms 2012 Purposes. Income tax forms 2012   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Income tax forms 2012 You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Income tax forms 2012   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Income tax forms 2012 A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Income tax forms 2012   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Income tax forms 2012 For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Income tax forms 2012 Limited membership. Income tax forms 2012   The membership in a social club must be limited. Income tax forms 2012 To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Income tax forms 2012   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Income tax forms 2012 Corporate members of a club are not the kind of members contemplated by the law. Income tax forms 2012 Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Income tax forms 2012 See Gross receipts from nonmembership sources , later. Income tax forms 2012 Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Income tax forms 2012   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Income tax forms 2012 However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Income tax forms 2012 Support. Income tax forms 2012   In general, your club should be supported solely by membership fees, dues, and assessments. Income tax forms 2012 However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Income tax forms 2012 Business activities. Income tax forms 2012   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Income tax forms 2012 However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Income tax forms 2012 Facilities open to public. Income tax forms 2012   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Income tax forms 2012 This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Income tax forms 2012 Gross receipts from nonmembership sources. Income tax forms 2012   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Income tax forms 2012 Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Income tax forms 2012 Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Income tax forms 2012 If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Income tax forms 2012 Gross receipts. Income tax forms 2012   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Income tax forms 2012 These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Income tax forms 2012 Receipts do not include initiation fees and capital contributions. Income tax forms 2012 Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Income tax forms 2012 Nontraditional activities. Income tax forms 2012   Activities conducted by a social club need to further its exempt purposes. Income tax forms 2012 Traditional business activities are those that further a social club's exempt purposes. Income tax forms 2012 Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Income tax forms 2012 Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Income tax forms 2012 Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Income tax forms 2012 Fraternity foundations. Income tax forms 2012   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Income tax forms 2012 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Income tax forms 2012 The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Income tax forms 2012 , purposes. Income tax forms 2012 The procedures to follow in applying for recognition of exemption are described in chapter 1. Income tax forms 2012 If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Income tax forms 2012 If so, your organization need not apply for individual recognition of exemption. Income tax forms 2012 For more information, see Group Exemption Letter in chapter 1 of this publication. Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Income tax forms 2012 Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Income tax forms 2012 The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Income tax forms 2012 Lodge system. Income tax forms 2012   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Income tax forms 2012 Payment of benefits. Income tax forms 2012   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Income tax forms 2012 An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Income tax forms 2012   The benefits must be limited to members and their dependents. Income tax forms 2012 If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Income tax forms 2012 Whole-life insurance. Income tax forms 2012   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Income tax forms 2012 Reinsurance pool. Income tax forms 2012   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Income tax forms 2012 Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Income tax forms 2012 The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Income tax forms 2012 S. Income tax forms 2012 , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Income tax forms 2012 The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Income tax forms 2012 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Income tax forms 2012 Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Income tax forms 2012 Chapter 1 describes the procedures to follow in applying for exemption. Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Income tax forms 2012 Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Income tax forms 2012 A local employees' association must apply for recognition of exemption by filing Form 1024. Income tax forms 2012 The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Income tax forms 2012 A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Income tax forms 2012 Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Income tax forms 2012 Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Income tax forms 2012 The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Income tax forms 2012 To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Income tax forms 2012 Note. Income tax forms 2012 Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Income tax forms 2012 Notice requirement. Income tax forms 2012   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Income tax forms 2012 The organization gives notice by filing Form 1024. Income tax forms 2012 If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Income tax forms 2012 An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Income tax forms 2012 Membership. Income tax forms 2012   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Income tax forms 2012 This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Income tax forms 2012   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Income tax forms 2012 For example, the owner of a business whose employees are members of the association can be a member. Income tax forms 2012 An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Income tax forms 2012 Employees. Income tax forms 2012   Employees include individuals who became entitled to membership because they are or were employees. Income tax forms 2012 For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Income tax forms 2012   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Income tax forms 2012 Conversely, membership is involuntary if the designation as a member is due to employee status. Income tax forms 2012 However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Income tax forms 2012 An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Income tax forms 2012 Payment of benefits. Income tax forms 2012   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Income tax forms 2012 The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Income tax forms 2012 Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Income tax forms 2012 Nondiscrimination requirements. Income tax forms 2012   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Income tax forms 2012 However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Income tax forms 2012   A plan meets the nondiscrimination requirements only if both of the following statements are true. Income tax forms 2012 Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Income tax forms 2012 The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Income tax forms 2012 A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Income tax forms 2012   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Income tax forms 2012 This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Income tax forms 2012   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Income tax forms 2012 The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Income tax forms 2012 For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Income tax forms 2012 Excluded employees. Income tax forms 2012   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Income tax forms 2012 These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Income tax forms 2012 Highly compensated individual. Income tax forms 2012   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Income tax forms 2012 Go to IRS. Income tax forms 2012 gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Income tax forms 2012 However, the employer can choose not to have (3) apply. Income tax forms 2012 Aggregation rules. Income tax forms 2012   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Income tax forms 2012 Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Income tax forms 2012 Leased employees are treated as employees of the recipient. Income tax forms 2012 One employee. Income tax forms 2012   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Income tax forms 2012 Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Income tax forms 2012 The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Income tax forms 2012 A conformed copy of the plan of which the trust is a part should be attached to the application. Income tax forms 2012 To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Income tax forms 2012 Note. Income tax forms 2012 Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Income tax forms 2012 Notice requirement. Income tax forms 2012   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Income tax forms 2012 The organization gives notice by filing Form 1024. Income tax forms 2012 If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Income tax forms 2012 An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Income tax forms 2012 Types of payments. Income tax forms 2012   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Income tax forms 2012 In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Income tax forms 2012 Diversion of funds. Income tax forms 2012   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Income tax forms 2012 Discrimination in benefits. Income tax forms 2012   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Income tax forms 2012 However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Income tax forms 2012 Prohibited transactions and exemption. Income tax forms 2012   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Income tax forms 2012 It must file the claim on Form 1024. Income tax forms 2012 The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Income tax forms 2012 An authorized principal officer of your organization must make this declaration under the penalties of perjury. Income tax forms 2012   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Income tax forms 2012 However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Income tax forms 2012 Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Income tax forms 2012 For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Income tax forms 2012 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Income tax forms 2012 Benevolent life insurance associations of a purely local character and like organizations. Income tax forms 2012 Mutual ditch or irrigation companies and like organizations. Income tax forms 2012 Mutual or cooperative telephone companies and like organizations. Income tax forms 2012 A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Income tax forms 2012 The information to be provided upon application by each of these organizations is described in this section. Income tax forms 2012 For information as to the procedures to follow in applying for exemption, see chapter 1. Income tax forms 2012 General requirements. Income tax forms 2012   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Income tax forms 2012 They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Income tax forms 2012 Mutual character. Income tax forms 2012   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Income tax forms 2012 They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Income tax forms 2012 To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Income tax forms 2012   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Income tax forms 2012 Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Income tax forms 2012 The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Income tax forms 2012 Membership. Income tax forms 2012   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Income tax forms 2012 In a stock company, the stockholders are members. Income tax forms 2012 However, a mutual life insurance organization cannot have policyholders other than its members. Income tax forms 2012 Losses and expenses. Income tax forms 2012   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Income tax forms 2012 Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Income tax forms 2012 If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Income tax forms 2012 Distributions of proceeds. Income tax forms 2012   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Income tax forms 2012 Such distribution represents a refund in the costs of services rendered to the member. Income tax forms 2012 The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Income tax forms 2012 Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Income tax forms 2012 Mutual or cooperative telephone company. Income tax forms 2012   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Income tax forms 2012 Mutual or cooperative electric company. Income tax forms 2012   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Income tax forms 2012   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Income tax forms 2012 Qualified pole rental. Income tax forms 2012   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Income tax forms 2012   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Income tax forms 2012 The 85% requirement is applied on the basis of an annual accounting period. Income tax forms 2012 Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Income tax forms 2012 Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Income tax forms 2012 Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Income tax forms 2012 Example. Income tax forms 2012   The books of an organization reflect the following for the calendar year. Income tax forms 2012 Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Income tax forms 2012   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Income tax forms 2012   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Income tax forms 2012   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Income tax forms 2012 Tax treatment of donations. Income tax forms 2012   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Income tax forms 2012 Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Income tax forms 2012 If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Income tax forms 2012 To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Income tax forms 2012 If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Income tax forms 2012 A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Income tax forms 2012 A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Income tax forms 2012 Organizations similar to local benevolent life insurance companies. Income tax forms 2012   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Income tax forms 2012 However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Income tax forms 2012 Burial and funeral benefit insurance organization. Income tax forms 2012   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Income tax forms 2012 An organization that provides its benefits in the form of supplies and service is not a life insurance company. Income tax forms 2012 Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Income tax forms 2012 Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Income tax forms 2012 They can serve noncontiguous areas. Income tax forms 2012 Like organization. Income tax forms 2012   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Income tax forms 2012 Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Income tax forms 2012 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Income tax forms 2012 For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Income tax forms 2012 A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Income tax forms 2012 A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Income tax forms 2012 The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Income tax forms 2012 If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Income tax forms 2012 Operating a mortuary is not permitted. Income tax forms 2012 However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Income tax forms 2012 How income can be used. Income tax forms 2012   You should show that your organization's earnings are or will be used only in one or more of the following ways. Income tax forms 2012 To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Income tax forms 2012 To buy cemetery property. Income tax forms 2012 To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Income tax forms 2012 No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Income tax forms 2012 Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Income tax forms 2012 Buying cemetery property. Income tax forms 2012   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Income tax forms 2012 You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Income tax forms 2012   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Income tax forms 2012 Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not