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Irs Tax Return 2011

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Irs Tax Return 2011

Irs tax return 2011 Publication 15 - Main Content Table of Contents 1. Irs tax return 2011 Employer Identification Number (EIN) 2. Irs tax return 2011 Who Are Employees?Relief provisions. Irs tax return 2011 Business Owned and Operated by Spouses 3. Irs tax return 2011 Family Employees 4. Irs tax return 2011 Employee's Social Security Number (SSN)Registering for SSNVS. Irs tax return 2011 5. Irs tax return 2011 Wages and Other CompensationAccountable plan. Irs tax return 2011 Nonaccountable plan. Irs tax return 2011 Per diem or other fixed allowance. Irs tax return 2011 50% test. Irs tax return 2011 Health Savings Accounts and medical savings accounts. Irs tax return 2011 Nontaxable fringe benefits. Irs tax return 2011 When fringe benefits are treated as paid. Irs tax return 2011 Valuation of fringe benefits. Irs tax return 2011 Withholding on fringe benefits. Irs tax return 2011 Depositing taxes on fringe benefits. Irs tax return 2011 6. Irs tax return 2011 TipsOrdering rule. Irs tax return 2011 7. Irs tax return 2011 Supplemental Wages 8. Irs tax return 2011 Payroll Period 9. Irs tax return 2011 Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Irs tax return 2011 Required Notice to Employees About the Earned Income Credit (EIC) 11. Irs tax return 2011 Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Irs tax return 2011 Filing Form 941 or Form 944 13. Irs tax return 2011 Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Irs tax return 2011 Federal Unemployment (FUTA) TaxSuccessor employer. Irs tax return 2011 Household employees. Irs tax return 2011 When to deposit. Irs tax return 2011 Household employees. Irs tax return 2011 Electronic filing by reporting agents. Irs tax return 2011 16. Irs tax return 2011 How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Irs tax return 2011 Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Irs tax return 2011 The EIN is a nine-digit number the IRS issues. Irs tax return 2011 The digits are arranged as follows: 00-0000000. Irs tax return 2011 It is used to identify the tax accounts of employers and certain others who have no employees. Irs tax return 2011 Use your EIN on all of the items you send to the IRS and SSA. Irs tax return 2011 For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Irs tax return 2011 If you do not have an EIN, you may apply for one online. Irs tax return 2011 Go to the IRS. Irs tax return 2011 gov and click on the Apply for an EIN Online link under Tools. Irs tax return 2011 You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Irs tax return 2011 Do not use an SSN in place of an EIN. Irs tax return 2011 You should have only one EIN. Irs tax return 2011 If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Irs tax return 2011 Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Irs tax return 2011 The IRS will tell you which number to use. Irs tax return 2011 If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Irs tax return 2011 If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Irs tax return 2011 2. Irs tax return 2011 Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Irs tax return 2011 See Publication 15-A for details on statutory employees and nonemployees. Irs tax return 2011 Employee status under common law. Irs tax return 2011   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Irs tax return 2011 This is so even when you give the employee freedom of action. Irs tax return 2011 What matters is that you have the right to control the details of how the services are performed. Irs tax return 2011 See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Irs tax return 2011   Generally, people in business for themselves are not employees. Irs tax return 2011 For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Irs tax return 2011 However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Irs tax return 2011   If an employer-employee relationship exists, it does not matter what it is called. Irs tax return 2011 The employee may be called an agent or independent contractor. Irs tax return 2011 It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Irs tax return 2011 Statutory employees. Irs tax return 2011   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Irs tax return 2011 Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Irs tax return 2011 An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Irs tax return 2011 A full-time life insurance salesperson who sells primarily for one company. Irs tax return 2011 A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Irs tax return 2011 A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Irs tax return 2011 The orders must be for merchandise for resale or supplies for use in the customer's business. Irs tax return 2011 The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Irs tax return 2011    Statutory nonemployees. Irs tax return 2011   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Irs tax return 2011 They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Irs tax return 2011 H-2A agricultural workers. Irs tax return 2011   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Irs tax return 2011 Treating employees as nonemployees. Irs tax return 2011   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Irs tax return 2011 You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Irs tax return 2011 The applicable rates depend on whether you filed required Forms 1099. Irs tax return 2011 You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Irs tax return 2011 You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Irs tax return 2011 You continue to owe the full employer share of social security and Medicare taxes. Irs tax return 2011 The employee remains liable for the employee share of social security and Medicare taxes. Irs tax return 2011 See Internal Revenue Code section 3509 for details. Irs tax return 2011 Also see the Instructions for Form 941-X. Irs tax return 2011   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Irs tax return 2011 Section 3509 is not available for reclassifying statutory employees. Irs tax return 2011 See Statutory employees , earlier in this section. Irs tax return 2011   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Irs tax return 2011 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Irs tax return 2011 For Medicare taxes; employer rate of 1. Irs tax return 2011 45% plus 20% of the employee rate of 1. Irs tax return 2011 45%, for a total rate of 1. Irs tax return 2011 74% of wages. Irs tax return 2011 For Additional Medicare Tax; 0. Irs tax return 2011 18% (20% of the employee rate of 0. Irs tax return 2011 9%) of wages subject to Additional Medicare Tax. Irs tax return 2011 For income tax withholding, the rate is 1. Irs tax return 2011 5% of wages. Irs tax return 2011   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Irs tax return 2011 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Irs tax return 2011 For Medicare taxes; employer rate of 1. Irs tax return 2011 45% plus 40% of the employee rate of 1. Irs tax return 2011 45%, for a total rate of 2. Irs tax return 2011 03% of wages. Irs tax return 2011 For Additional Medicare Tax; 0. Irs tax return 2011 36% (40% of the employee rate of 0. Irs tax return 2011 9%) of wages subject to Additional Medicare Tax. Irs tax return 2011 For income tax withholding, the rate is 3. Irs tax return 2011 0% of wages. Irs tax return 2011 Relief provisions. Irs tax return 2011   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Irs tax return 2011 To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Irs tax return 2011 You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Irs tax return 2011 See Publication 1976, Do You Qualify for Relief Under Section 530. Irs tax return 2011 IRS help. Irs tax return 2011   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Irs tax return 2011 Voluntary Classification Settlement Program (VCSP). Irs tax return 2011   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Irs tax return 2011 To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Irs tax return 2011 For more information visit IRS. Irs tax return 2011 gov and enter “VCSP” in the search box. Irs tax return 2011 Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Irs tax return 2011 See Publication 541, Partnerships, for more details. Irs tax return 2011 The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Irs tax return 2011 Exception—Qualified joint venture. Irs tax return 2011   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Irs tax return 2011 A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Irs tax return 2011   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Irs tax return 2011 Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Irs tax return 2011   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Irs tax return 2011 If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Irs tax return 2011 Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Irs tax return 2011 However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Irs tax return 2011    Note. Irs tax return 2011 If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Irs tax return 2011   For more information on qualified joint ventures, visit IRS. Irs tax return 2011 gov and enter “qualified joint venture” in the search box. Irs tax return 2011 Exception—Community income. Irs tax return 2011   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Irs tax return 2011 S. Irs tax return 2011 possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Irs tax return 2011 You may still make an election to be taxed as a qualified joint venture instead of a partnership. Irs tax return 2011 See Exception—Qualified joint venture , earlier. Irs tax return 2011 3. Irs tax return 2011 Family Employees Child employed by parents. Irs tax return 2011   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Irs tax return 2011 If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Irs tax return 2011 However, see Covered services of a child or spouse , later in this section. Irs tax return 2011 Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Irs tax return 2011 Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Irs tax return 2011 One spouse employed by another. Irs tax return 2011   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Irs tax return 2011 However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Irs tax return 2011 Covered services of a child or spouse. Irs tax return 2011   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Irs tax return 2011 Parent employed by son or daughter. Irs tax return 2011   When the employer is a son or daughter employing his or her parent the following rules apply. Irs tax return 2011 Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Irs tax return 2011 Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Irs tax return 2011    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Irs tax return 2011   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Irs tax return 2011 4. Irs tax return 2011 Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Irs tax return 2011 This requirement also applies to resident and nonresident alien employees. Irs tax return 2011 You should ask your employee to show you his or her social security card. Irs tax return 2011 The employee may show the card if it is available. Irs tax return 2011 Do not accept a social security card that says “Not valid for employment. Irs tax return 2011 ” A social security number issued with this legend does not permit employment. Irs tax return 2011 You may, but are not required to, photocopy the social security card if the employee provides it. Irs tax return 2011 If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Irs tax return 2011 See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Irs tax return 2011 Applying for a social security card. Irs tax return 2011   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. Irs tax return 2011 You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Irs tax return 2011 socialsecurity. Irs tax return 2011 gov/online/ss-5. Irs tax return 2011 html. Irs tax return 2011 The employee must complete and sign Form SS-5; it cannot be filed by the employer. Irs tax return 2011 You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Irs tax return 2011 Applying for a social security number. Irs tax return 2011   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Irs tax return 2011 If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Irs tax return 2011 When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Irs tax return 2011 Furnish copies B, C, and 2 of Form W-2c to the employee. Irs tax return 2011 Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Irs tax return 2011 For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Irs tax return 2011 socialsecurity. Irs tax return 2011 gov/employer. Irs tax return 2011 Advise your employee to correct the SSN on his or her original Form W-2. Irs tax return 2011 Correctly record the employee's name and SSN. Irs tax return 2011   Record the name and number of each employee as they are shown on the employee's social security card. Irs tax return 2011 If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Irs tax return 2011 Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Irs tax return 2011 If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Irs tax return 2011 It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Irs tax return 2011 IRS individual taxpayer identification numbers (ITINs) for aliens. Irs tax return 2011   Do not accept an ITIN in place of an SSN for employee identification or for work. Irs tax return 2011 An ITIN is only available to resident and nonresident aliens who are not eligible for U. Irs tax return 2011 S. Irs tax return 2011 employment and need identification for other tax purposes. Irs tax return 2011 You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Irs tax return 2011    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Irs tax return 2011 If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Irs tax return 2011 Do not use an ITIN in place of an SSN on Form W-2. Irs tax return 2011 Verification of social security numbers. Irs tax return 2011   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Irs tax return 2011 Visit www. Irs tax return 2011 socialsecurity. Irs tax return 2011 gov/employer/ssnv. Irs tax return 2011 htm for more information. Irs tax return 2011 Registering for SSNVS. Irs tax return 2011   You must register online and receive authorization from your employer to use SSNVS. Irs tax return 2011 To register, visit SSA's website at www. Irs tax return 2011 ssa. Irs tax return 2011 gov/employer and click on the Business Services Online link. Irs tax return 2011 Follow the registration instructions to obtain a user identification (ID) and password. Irs tax return 2011 You will need to provide the following information about yourself and your company. Irs tax return 2011 Name. Irs tax return 2011 SSN. Irs tax return 2011 Date of birth. Irs tax return 2011 Type of employer. Irs tax return 2011 EIN. Irs tax return 2011 Company name, address, and telephone number. Irs tax return 2011 Email address. Irs tax return 2011   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Irs tax return 2011 You must enter the activation code online to use SSNVS. Irs tax return 2011 5. Irs tax return 2011 Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Irs tax return 2011 The pay may be in cash or in other forms. Irs tax return 2011 It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Irs tax return 2011 It does not matter how you measure or make the payments. Irs tax return 2011 Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Irs tax return 2011 Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Irs tax return 2011 More information. Irs tax return 2011   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Irs tax return 2011 Also, see section 15 for exceptions to the general rules for wages. Irs tax return 2011 Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Irs tax return 2011 Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Irs tax return 2011 Employee business expense reimbursements. Irs tax return 2011   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Irs tax return 2011 How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Irs tax return 2011 If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Irs tax return 2011   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Irs tax return 2011 Accountable plan. Irs tax return 2011   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Irs tax return 2011 They must have paid or incurred deductible expenses while performing services as your employees. Irs tax return 2011 The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Irs tax return 2011 They must substantiate these expenses to you within a reasonable period of time. Irs tax return 2011 They must return any amounts in excess of substantiated expenses within a reasonable period of time. Irs tax return 2011   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Irs tax return 2011   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Irs tax return 2011 This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Irs tax return 2011   A reasonable period of time depends on the facts and circumstances. Irs tax return 2011 Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Irs tax return 2011 Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Irs tax return 2011 Nonaccountable plan. Irs tax return 2011   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Irs tax return 2011 Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Irs tax return 2011   See section 7 for more information on supplemental wages. Irs tax return 2011 Per diem or other fixed allowance. Irs tax return 2011   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Irs tax return 2011 In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Irs tax return 2011 The 2013 standard mileage rate for auto expenses was 56. Irs tax return 2011 5 cents per mile. Irs tax return 2011 The rate for 2014 is 56 cents per mile. Irs tax return 2011   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Irs tax return 2011 Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Irs tax return 2011   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Irs tax return 2011 This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Irs tax return 2011 Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Irs tax return 2011 ” Wages not paid in money. Irs tax return 2011   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Irs tax return 2011 ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Irs tax return 2011 Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Irs tax return 2011   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Irs tax return 2011 Withhold income tax on these payments only if you and the employee agree to do so. Irs tax return 2011 Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Irs tax return 2011 Moving expenses. Irs tax return 2011   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Irs tax return 2011 Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Irs tax return 2011 For more information on moving expenses, see Publication 521, Moving Expenses. Irs tax return 2011 Meals and lodging. Irs tax return 2011   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Irs tax return 2011 The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Irs tax return 2011    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Irs tax return 2011 For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Irs tax return 2011   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Irs tax return 2011 A written statement that the meals or lodging are for your convenience is not sufficient. Irs tax return 2011 50% test. Irs tax return 2011   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Irs tax return 2011 If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Irs tax return 2011 For more information, see Publication 15-B. Irs tax return 2011 Health insurance plans. Irs tax return 2011   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Irs tax return 2011 Generally, this exclusion also applies to qualified long-term care insurance contracts. Irs tax return 2011 However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Irs tax return 2011 For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Irs tax return 2011 See Announcement 92-16 for more information. Irs tax return 2011 You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Irs tax return 2011 Health Savings Accounts and medical savings accounts. Irs tax return 2011   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Irs tax return 2011 To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Irs tax return 2011 Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Irs tax return 2011 However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Irs tax return 2011 For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Irs tax return 2011 Medical care reimbursements. Irs tax return 2011   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Irs tax return 2011 See Publication 15-B for an exception for highly compensated employees. Irs tax return 2011 Differential wage payments. Irs tax return 2011   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Irs tax return 2011   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Irs tax return 2011 Employers should report differential wage payments in box 1 of Form W-2. Irs tax return 2011 For more information about the tax treatment of differential wage payments, visit IRS. Irs tax return 2011 gov and enter “employees in a combat zone” in the search box. Irs tax return 2011 Fringe benefits. Irs tax return 2011   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Irs tax return 2011 The benefits are subject to income tax withholding and employment taxes. Irs tax return 2011 Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Irs tax return 2011 In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Irs tax return 2011 There are other special rules you and your employees may use to value certain fringe benefits. Irs tax return 2011 See Publication 15-B for more information. Irs tax return 2011 Nontaxable fringe benefits. Irs tax return 2011   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Irs tax return 2011 See Publication 15-B for details. Irs tax return 2011 The following are some examples of nontaxable fringe benefits. Irs tax return 2011 Services provided to your employees at no additional cost to you. Irs tax return 2011 Qualified employee discounts. Irs tax return 2011 Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Irs tax return 2011 Examples include a company car for business use and subscriptions to business magazines. Irs tax return 2011 Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Irs tax return 2011 Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Irs tax return 2011 Qualified moving expense reimbursement. Irs tax return 2011 See Moving expenses , earlier in this section, for details. Irs tax return 2011 The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Irs tax return 2011 Qualified tuition reduction an educational organization provides to its employees for education. Irs tax return 2011 For more information, see Publication 970, Tax Benefits for Education. Irs tax return 2011 Employer-provided cell phones provided primarily for a noncompensatory business reason. Irs tax return 2011   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Irs tax return 2011 No-additional-cost services. Irs tax return 2011 Qualified employee discounts. Irs tax return 2011 Meals provided at an employer operated eating facility. Irs tax return 2011 Reduced tuition for education. Irs tax return 2011  For more information, including the definition of a highly compensated employee, see Publication 15-B. Irs tax return 2011 When fringe benefits are treated as paid. Irs tax return 2011   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Irs tax return 2011 You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Irs tax return 2011 You do not have to make this choice for all employees. Irs tax return 2011 You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Irs tax return 2011 See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Irs tax return 2011 Valuation of fringe benefits. Irs tax return 2011   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Irs tax return 2011 Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Irs tax return 2011 Withholding on fringe benefits. Irs tax return 2011   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Irs tax return 2011 However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Irs tax return 2011   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Irs tax return 2011 You must, however, withhold social security and Medicare taxes on the use of the vehicle. Irs tax return 2011 See Publication 15-B for more information on this election. Irs tax return 2011 Depositing taxes on fringe benefits. Irs tax return 2011   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Irs tax return 2011 To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Irs tax return 2011   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Irs tax return 2011 See Valuation of fringe benefits , earlier. Irs tax return 2011 If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Irs tax return 2011 See section 11 for information on deposit penalties. Irs tax return 2011   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Irs tax return 2011 However, you must recover the income taxes before April 1 of the following year. Irs tax return 2011 Sick pay. Irs tax return 2011   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Irs tax return 2011 These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Irs tax return 2011 In either case, these payments are subject to social security, Medicare, and FUTA taxes. Irs tax return 2011 Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Irs tax return 2011 The payments are always subject to federal income tax. Irs tax return 2011 See Publication 15-A for more information. Irs tax return 2011 6. Irs tax return 2011 Tips Tips your employee receives from customers are generally subject to withholding. Irs tax return 2011 Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Irs tax return 2011 The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Irs tax return 2011 Both directly and indirectly tipped employees must report tips to you. Irs tax return 2011 No report is required for months when tips are less than $20. Irs tax return 2011 Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Irs tax return 2011 The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Irs tax return 2011 Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Irs tax return 2011 You are permitted to establish a system for electronic tip reporting by employees. Irs tax return 2011 See Regulations section 31. Irs tax return 2011 6053-1(d). Irs tax return 2011 Collecting taxes on tips. Irs tax return 2011   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Irs tax return 2011 The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Irs tax return 2011 If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Irs tax return 2011   You can collect these taxes from the employee's wages or from other funds he or she makes available. Irs tax return 2011 See Tips treated as supplemental wages in section 7 for more information. Irs tax return 2011 Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Irs tax return 2011 You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Irs tax return 2011 You are responsible for the employer Medicare tax for the whole year on all wages and tips. Irs tax return 2011 File Form 941 or Form 944 to report withholding and employment taxes on tips. Irs tax return 2011 Ordering rule. Irs tax return 2011   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Irs tax return 2011 If there are not enough funds available, withhold taxes in the following order. Irs tax return 2011 Withhold on regular wages and other compensation. Irs tax return 2011 Withhold social security and Medicare taxes on tips. Irs tax return 2011 Withhold income tax on tips. Irs tax return 2011 Reporting tips. Irs tax return 2011   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Irs tax return 2011 Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Irs tax return 2011 Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Irs tax return 2011 ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Irs tax return 2011 See section 13 and the General Instructions for Forms W-2 and W-3. Irs tax return 2011   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Irs tax return 2011 See Revenue Ruling 2012-18, 2012-26 I. Irs tax return 2011 R. Irs tax return 2011 B. Irs tax return 2011 1032, available at www. Irs tax return 2011 irs. Irs tax return 2011 gov/irb/2012-26_IRB/ar07. Irs tax return 2011 html. Irs tax return 2011 Allocated tips. Irs tax return 2011   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Irs tax return 2011 However, do not withhold income, social security, or Medicare taxes on allocated tips. Irs tax return 2011   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Irs tax return 2011   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Irs tax return 2011 For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Irs tax return 2011 For information on filing Form 8027 electronically with the IRS, see Publication 1239. Irs tax return 2011 Tip Rate Determination and Education Program. Irs tax return 2011   Employers may participate in the Tip Rate Determination and Education Program. Irs tax return 2011 The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Irs tax return 2011 The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Irs tax return 2011 A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Irs tax return 2011 To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Irs tax return 2011 Additionally, visit IRS. Irs tax return 2011 gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Irs tax return 2011 7. Irs tax return 2011 Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Irs tax return 2011 They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Irs tax return 2011 Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Irs tax return 2011 How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Irs tax return 2011 See Regulations section 31. Irs tax return 2011 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Irs tax return 2011 Also see Revenue Ruling 2008-29, 2008-24 I. Irs tax return 2011 R. Irs tax return 2011 B. Irs tax return 2011 1149, available at www. Irs tax return 2011 irs. Irs tax return 2011 gov/irb/2008-24_IRB/ar08. Irs tax return 2011 html. Irs tax return 2011 Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Irs tax return 2011   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Irs tax return 2011 If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Irs tax return 2011 6% (or the highest rate of income tax for the year). Irs tax return 2011 Withhold using the 39. Irs tax return 2011 6% rate without regard to the employee's Form W-4. Irs tax return 2011 In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Irs tax return 2011 For more information, see Treasury Decision 9276, 2006-37 I. Irs tax return 2011 R. Irs tax return 2011 B. Irs tax return 2011 423, available at www. Irs tax return 2011 irs. Irs tax return 2011 gov/irb/2006-37_IRB/ar09. Irs tax return 2011 html. Irs tax return 2011 Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Irs tax return 2011   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Irs tax return 2011 Supplemental wages combined with regular wages. Irs tax return 2011   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Irs tax return 2011 Supplemental wages identified separately from regular wages. Irs tax return 2011   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Irs tax return 2011 If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Irs tax return 2011 Withhold a flat 25% (no other percentage allowed). Irs tax return 2011 If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Irs tax return 2011 If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Irs tax return 2011 Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Irs tax return 2011 Subtract the tax withheld from the regular wages. Irs tax return 2011 Withhold the remaining tax from the supplemental wages. Irs tax return 2011 If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Irs tax return 2011 If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Irs tax return 2011 This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Irs tax return 2011 Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Irs tax return 2011 Example 1. Irs tax return 2011 You pay John Peters a base salary on the 1st of each month. Irs tax return 2011 He is single and claims one withholding allowance. Irs tax return 2011 In January he is paid $1,000. Irs tax return 2011 Using the wage bracket tables, you withhold $50 from this amount. Irs tax return 2011 In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Irs tax return 2011 You figure the withholding based on the total of $3,000. Irs tax return 2011 The correct withholding from the tables is $338. Irs tax return 2011 Example 2. Irs tax return 2011 You pay Sharon Warren a base salary on the 1st of each month. Irs tax return 2011 She is single and claims one allowance. Irs tax return 2011 Her May 1 pay is $2,000. Irs tax return 2011 Using the wage bracket tables, you withhold $188. Irs tax return 2011 On May 14 she receives a bonus of $1,000. Irs tax return 2011 Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Irs tax return 2011 Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Irs tax return 2011 Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Irs tax return 2011 Withhold $150 from the bonus payment. Irs tax return 2011 Example 3. Irs tax return 2011 The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Irs tax return 2011 You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Irs tax return 2011 Example 4. Irs tax return 2011 The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Irs tax return 2011 Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Irs tax return 2011 Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Irs tax return 2011 Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Irs tax return 2011 Withhold $443 from the second bonus payment. Irs tax return 2011 Tips treated as supplemental wages. Irs tax return 2011   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Irs tax return 2011 If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Irs tax return 2011 If you have not withheld income tax from the regular wages, add the tips to the regular wages. Irs tax return 2011 Then withhold income tax on the total. Irs tax return 2011 If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Irs tax return 2011 Vacation pay. Irs tax return 2011   Vacation pay is subject to withholding as if it were a regular wage payment. Irs tax return 2011 When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Irs tax return 2011 If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Irs tax return 2011 8. Irs tax return 2011 Payroll Period Your payroll period is a period of service for which you usually pay wages. Irs tax return 2011 When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Irs tax return 2011 No regular payroll period. Irs tax return 2011   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Irs tax return 2011 Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Irs tax return 2011 If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Irs tax return 2011 Employee paid for period less than 1 week. Irs tax return 2011   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Irs tax return 2011 If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Irs tax return 2011 You then figure withholding based on the daily or miscellaneous period. Irs tax return 2011 9. Irs tax return 2011 Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Irs tax return 2011   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Irs tax return 2011 Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Irs tax return 2011 Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Irs tax return 2011 irs. Irs tax return 2011 gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Irs tax return 2011   Ask all new employees to give you a signed Form W-4 when they start work. Irs tax return 2011 Make the form effective with the first wage payment. Irs tax return 2011 If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Irs tax return 2011 Form in Spanish. Irs tax return 2011   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Irs tax return 2011 For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Irs tax return 2011 The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Irs tax return 2011 Electronic system to receive Form W-4. Irs tax return 2011   You may establish a system to electronically receive Forms W-4 from your employees. Irs tax return 2011 See Regulations section 31. Irs tax return 2011 3402(f)(5)-1(c) for more information. Irs tax return 2011 Effective date of Form W-4. Irs tax return 2011   A Form W-4 remains in effect until the employee gives you a new one. Irs tax return 2011 When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Irs tax return 2011 If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Irs tax return 2011 For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Irs tax return 2011 A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Irs tax return 2011 Successor employer. Irs tax return 2011   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Irs tax return 2011 See Revenue Procedure 2004-53, 2004-34 I. Irs tax return 2011 R. Irs tax return 2011 B. Irs tax return 2011 320, available at www. Irs tax return 2011 irs. Irs tax return 2011 gov/irb/2004-34_IRB/ar13. Irs tax return 2011 html. Irs tax return 2011 Completing Form W-4. Irs tax return 2011   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Irs tax return 2011 Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Irs tax return 2011 However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Irs tax return 2011 Employees may claim fewer withholding allowances than they are entitled to claim. Irs tax return 2011 They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Irs tax return 2011 See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Irs tax return 2011 Along with Form W-4, you may wish to order Publication 505 for use by your employees. Irs tax return 2011 Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Irs tax return 2011 If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Irs tax return 2011 Exemption from federal income tax withholding. Irs tax return 2011   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Irs tax return 2011 See the Form W-4 instructions for more information. Irs tax return 2011 However, the wages are still subject to social security and Medicare taxes. Irs tax return 2011 See also Invalid Forms W-4 , later in this section. Irs tax return 2011   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Irs tax return 2011 To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Irs tax return 2011 If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Irs tax return 2011 If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Irs tax return 2011 Withholding income taxes on the wages of nonresident alien employees. Irs tax return 2011   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Irs tax return 2011 However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Irs tax return 2011 Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Irs tax return 2011 Withholding adjustment for nonresident alien employees. Irs tax return 2011   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Irs tax return 2011 Nonresident alien students from India and business apprentices from India are not subject to this procedure. Irs tax return 2011 Instructions. Irs tax return 2011   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Irs tax return 2011 Step 1. Irs tax return 2011   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Irs tax return 2011    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Irs tax return 2011 30     Biweekly 86. Irs tax return 2011 50     Semimonthly 93. Irs tax return 2011 80     Monthly 187. Irs tax return 2011 50     Quarterly 562. Irs tax return 2011 50     Semiannually 1,125. Irs tax return 2011 00     Annually 2,250. Irs tax return 2011 00     Daily or Miscellaneous (each day of the payroll period) 8. Irs tax return 2011 70   Step 2. Irs tax return 2011   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Irs tax return 2011 Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Irs tax return 2011 Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Irs tax return 2011 If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Irs tax return 2011 If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Irs tax return 2011 The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Irs tax return 2011 The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Irs tax return 2011 Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Irs tax return 2011 This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Irs tax return 2011 Example. Irs tax return 2011 An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Irs tax return 2011 The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Irs tax return 2011 The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Irs tax return 2011 50 from the chart under Step 1 ($586. Irs tax return 2011 50 total). Irs tax return 2011 The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Irs tax return 2011 Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Irs tax return 2011 The $86. Irs tax return 2011 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Irs tax return 2011 Also, the $86. Irs tax return 2011 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Irs tax return 2011 Supplemental wage payment. Irs tax return 2011   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Irs tax return 2011 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Irs tax return 2011 Nonresident alien employee's Form W-4. Irs tax return 2011   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Irs tax return 2011   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Irs tax return 2011 A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Irs tax return 2011 Form 8233. Irs tax return 2011   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Irs tax return 2011 See Publication 515 for details. Irs tax return 2011 IRS review of requested Forms W-4. Irs tax return 2011   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Irs tax return 2011 You may also be directed to send certain Forms W-4 to the IRS. Irs tax return 2011 You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Irs tax return 2011 Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Irs tax return 2011 The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Irs tax return 2011 R. Irs tax return 2011 B. Irs tax return 2011 455, which is available at www. Irs tax return 2011 irs. Irs tax return 2011 gov/irb/2007-35_IRB/ar10. Irs tax return 2011 html. Irs tax return 2011 When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Irs tax return 2011 After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Irs tax return 2011 However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter
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The Irs Tax Return 2011

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