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State Tax Return For Free

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State Tax Return For Free

State tax return for free 2. State tax return for free   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. State tax return for free This is the section 179 deduction. State tax return for free You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. State tax return for free Estates and trusts cannot elect the section 179 deduction. State tax return for free This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. State tax return for free It also explains when and how to recapture the deduction. State tax return for free Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. State tax return for free What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. State tax return for free It must be eligible property. State tax return for free It must be acquired for business use. State tax return for free It must have been acquired by purchase. State tax return for free It must not be property described later under What Property Does Not Qualify . State tax return for free The following discussions provide information about these requirements and exceptions. State tax return for free Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. State tax return for free Tangible personal property. State tax return for free Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. State tax return for free Single purpose agricultural (livestock) or horticultural structures. State tax return for free See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. State tax return for free Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. State tax return for free Off-the-shelf computer software. State tax return for free Qualified real property (described below). State tax return for free Tangible personal property. State tax return for free   Tangible personal property is any tangible property that is not real property. State tax return for free It includes the following property. State tax return for free Machinery and equipment. State tax return for free Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. State tax return for free Gasoline storage tanks and pumps at retail service stations. State tax return for free Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. State tax return for free   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. State tax return for free For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. State tax return for free Off-the-shelf computer software. State tax return for free   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. State tax return for free This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. State tax return for free It includes any program designed to cause a computer to perform a desired function. State tax return for free However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. State tax return for free Qualified real property. State tax return for free   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. State tax return for free If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. State tax return for free The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. State tax return for free For more information, see Special rules for qualified section 179 real property, later. State tax return for free Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. State tax return for free Qualified leasehold improvement property. State tax return for free   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. State tax return for free   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. State tax return for free A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. State tax return for free Examples include the following. State tax return for free A complete liquidation of a subsidiary. State tax return for free A transfer to a corporation controlled by the transferor. State tax return for free An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. State tax return for free Qualified restaurant property. State tax return for free   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. State tax return for free Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. State tax return for free Qualified retail improvement property. State tax return for free   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. State tax return for free The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. State tax return for free The improvement is placed in service more than 3 years after the date the building was first placed in service. State tax return for free The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. State tax return for free In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. State tax return for free A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. State tax return for free Examples include the following. State tax return for free A complete liquidation of a subsidiary. State tax return for free A transfer to a corporation controlled by the transferor. State tax return for free An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. State tax return for free Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. State tax return for free Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. State tax return for free Partial business use. State tax return for free   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. State tax return for free If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. State tax return for free Use the resulting business cost to figure your section 179 deduction. State tax return for free Example. State tax return for free May Oak bought and placed in service an item of section 179 property costing $11,000. State tax return for free She used the property 80% for her business and 20% for personal purposes. State tax return for free The business part of the cost of the property is $8,800 (80% × $11,000). State tax return for free Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. State tax return for free For example, property acquired by gift or inheritance does not qualify. State tax return for free Property is not considered acquired by purchase in the following situations. State tax return for free It is acquired by one component member of a controlled group from another component member of the same group. State tax return for free Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. State tax return for free It is acquired from a related person. State tax return for free Related persons. State tax return for free   Related persons are described under Related persons earlier. State tax return for free However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. State tax return for free Example. State tax return for free Ken Larch is a tailor. State tax return for free He bought two industrial sewing machines from his father. State tax return for free He placed both machines in service in the same year he bought them. State tax return for free They do not qualify as section 179 property because Ken and his father are related persons. State tax return for free He cannot claim a section 179 deduction for the cost of these machines. State tax return for free What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. State tax return for free This includes the following. State tax return for free Land and Improvements Land and land improvements do not qualify as section 179 property. State tax return for free Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. State tax return for free Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. State tax return for free Certain property you lease to others (if you are a noncorporate lessor). State tax return for free Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. State tax return for free Air conditioning or heating units. State tax return for free Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. State tax return for free Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. State tax return for free Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. State tax return for free Leased property. State tax return for free   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. State tax return for free This rule does not apply to corporations. State tax return for free However, you can claim a section 179 deduction for the cost of the following property. State tax return for free Property you manufacture or produce and lease to others. State tax return for free Property you purchase and lease to others if both the following tests are met. State tax return for free The term of the lease (including options to renew) is less than 50% of the property's class life. State tax return for free For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. State tax return for free Property used for lodging. State tax return for free   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. State tax return for free However, this does not apply to the following types of property. State tax return for free Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. State tax return for free Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. State tax return for free Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. State tax return for free Any energy property. State tax return for free Energy property. State tax return for free   Energy property is property that meets the following requirements. State tax return for free It is one of the following types of property. State tax return for free Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. State tax return for free Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. State tax return for free Equipment used to produce, distribute, or use energy derived from a geothermal deposit. State tax return for free For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. State tax return for free Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. State tax return for free The construction, reconstruction, or erection of the property must be completed by you. State tax return for free For property you acquire, the original use of the property must begin with you. State tax return for free The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. State tax return for free   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). State tax return for free How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. State tax return for free However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. State tax return for free These limits apply to each taxpayer, not to each business. State tax return for free However, see Married Individuals under Dollar Limits , later. State tax return for free For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. State tax return for free See Do the Passenger Automobile Limits Apply in chapter 5 . State tax return for free If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. State tax return for free Trade-in of other property. State tax return for free   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. State tax return for free Example. State tax return for free Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. State tax return for free They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. State tax return for free The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. State tax return for free They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. State tax return for free Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. State tax return for free Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). State tax return for free Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. State tax return for free If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. State tax return for free You do not have to claim the full $500,000. State tax return for free Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. State tax return for free The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. State tax return for free After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. State tax return for free Example. State tax return for free In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. State tax return for free You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. State tax return for free This is the maximum amount you can deduct. State tax return for free Your $25,000 deduction for the saw completely recovered its cost. State tax return for free Your basis for depreciation is zero. State tax return for free The basis for depreciation of your machinery is $25,000. State tax return for free You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. State tax return for free Situations affecting dollar limit. State tax return for free   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. State tax return for free The general dollar limit is affected by any of the following situations. State tax return for free The cost of your section 179 property placed in service exceeds $2,000,000. State tax return for free Your business is an enterprise zone business. State tax return for free You placed in service a sport utility or certain other vehicles. State tax return for free You are married filing a joint or separate return. State tax return for free Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. State tax return for free 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. State tax return for free Example. State tax return for free In 2013, Jane Ash placed in service machinery costing $2,100,000. State tax return for free This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). State tax return for free Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. State tax return for free For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. State tax return for free The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). State tax return for free Note. State tax return for free   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). State tax return for free Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. State tax return for free This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. State tax return for free However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible 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. State tax return for free Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. State tax return for free If you 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. State tax return for free If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. State tax return for free You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. State tax return for free If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. State tax return for free Example. State tax return for free Jack Elm is married. State tax return for free He and his wife file separate returns. State tax return for free Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. State tax return for free His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. State tax return for free Their combined dollar limit is $470,000. State tax return for free This is because they must figure the limit as if they were one taxpayer. State tax return for free They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. State tax return for free They elect to allocate the $470,000 dollar limit as follows. State tax return for free $446,500 ($470,000 x 95%) to Mr. State tax return for free Elm's machinery. State tax return for free $23,500 ($470,000 x 5%) to Mrs. State tax return for free Elm's equipment. State tax return for free If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. State tax return for free Joint return after filing separate returns. State tax return for free   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. State tax return for free The dollar limit (after reduction for any cost of section 179 property over $2,000,000). State tax return for free The total cost of section 179 property you and your spouse elected to expense on your separate returns. State tax return for free Example. State tax return for free The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. State tax return for free After the due date of their returns, they file a joint return. State tax return for free Their dollar limit for the section 179 deduction is $32,000. State tax return for free This is the lesser of the following amounts. State tax return for free $470,000—The dollar limit less the cost of section 179 property over $2,000,000. State tax return for free $32,000—The total they elected to expense on their separate returns. State tax return for free Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. State tax return for free Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. State tax return for free Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. State tax return for free Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. State tax return for free See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. State tax return for free Taxable income. State tax return for free   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. State tax return for free Net income or loss from a trade or business includes the following items. State tax return for free Section 1231 gains (or losses). State tax return for free Interest from working capital of your trade or business. State tax return for free Wages, salaries, tips, or other pay earned as an employee. State tax return for free For information about section 1231 gains and losses, see chapter 3 in Publication 544. State tax return for free   In addition, figure taxable income without regard to any of the following. State tax return for free The section 179 deduction. State tax return for free The self-employment tax deduction. State tax return for free Any net operating loss carryback or carryforward. State tax return for free Any unreimbursed employee business expenses. State tax return for free Two different taxable income limits. State tax return for free   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. State tax return for free You may have to figure the limit for this other deduction taking into account the section 179 deduction. State tax return for free If so, complete the following steps. State tax return for free Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. State tax return for free 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. State tax return for free 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. State tax return for free 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. State tax return for free 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. State tax return for free 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. State tax return for free 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. State tax return for free 8 Figure your actual other deduction using the taxable income figured in Step 7. State tax return for free Example. State tax return for free On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. State tax return for free It elects to expense the entire $500,000 cost under section 179. State tax return for free In June, the corporation gave a charitable contribution of $10,000. State tax return for free A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. State tax return for free The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. State tax return for free XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. State tax return for free XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. State tax return for free Step 1– Taxable income figured without either deduction is $520,000. State tax return for free Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. State tax return for free Step 3– $20,000 ($520,000 − $500,000). State tax return for free Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. State tax return for free Step 5– $518,000 ($520,000 − $2,000). State tax return for free Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. State tax return for free Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. State tax return for free Step 7– $20,000 ($520,000 − $500,000). State tax return for free Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. State tax return for free Carryover of disallowed deduction. State tax return for free   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. State tax return for free This disallowed deduction amount is shown on line 13 of Form 4562. State tax return for free You use the amount you carry over to determine your section 179 deduction in the next year. State tax return for free Enter that amount on line 10 of your Form 4562 for the next year. State tax return for free   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. State tax return for free Your selections must be shown in your books and records. State tax return for free For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. State tax return for free If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. State tax return for free   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. State tax return for free Special rules for qualified section 179 real property. State tax return for free   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. State tax return for free Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. State tax return for free Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). State tax return for free See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. State tax return for free If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. State tax return for free Instead, you must add it back to the property's basis. State tax return for free Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. State tax return for free The partnership determines its section 179 deduction subject to the limits. State tax return for free It then allocates the deduction among its partners. State tax return for free Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. State tax return for free ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. State tax return for free To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. State tax return for free After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. State tax return for free Partnership's taxable income. State tax return for free   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. State tax return for free See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). State tax return for free However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. State tax return for free Partner's share of partnership's taxable income. State tax return for free   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. State tax return for free Example. State tax return for free In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. State tax return for free The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). State tax return for free Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. State tax return for free The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. State tax return for free It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. State tax return for free In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. State tax return for free He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. State tax return for free He had a net loss of $5,000 from that business for the year. State tax return for free Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. State tax return for free His maximum section 179 deduction is $500,000. State tax return for free He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. State tax return for free However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). State tax return for free He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. State tax return for free He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. State tax return for free Different tax years. State tax return for free   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. State tax return for free Example. State tax return for free John and James Oak are equal partners in Oak Partnership. State tax return for free Oak Partnership uses a tax year ending January 31. State tax return for free John and James both use a tax year ending December 31. State tax return for free For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. State tax return for free John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. State tax return for free Adjustment of partner's basis in partnership. State tax return for free   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. State tax return for free If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. State tax return for free Adjustment of partnership's basis in section 179 property. State tax return for free   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. State tax return for free This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. State tax return for free S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. State tax return for free The deduction limits apply to an S corporation and to each shareholder. State tax return for free The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. State tax return for free Figuring taxable income for an S corporation. State tax return for free   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. State tax return for free   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. State tax return for free However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. State tax return for free For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. State tax return for free In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. State tax return for free Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. State tax return for free It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). State tax return for free It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. State tax return for free How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. State tax return for free If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. State tax return for free For property placed in service in 2013, file Form 4562 with either of the following. State tax return for free Your original 2013 tax return, whether or not you file it timely. State tax return for free An amended return for 2013 filed within the time prescribed by law. State tax return for free 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. State tax return for free The amended return must also include any resulting adjustments to taxable income. State tax return for free You must keep records that show the specific identification of each piece of qualifying section 179 property. State tax return for free These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. State tax return for free Election for certain qualified section 179 real property. State tax return for free   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. State tax return for free If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. State tax return for free   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. State tax return for free Your original 2013 tax return, whether or not you file it timely. State tax return for free An amended return for 2013 filed within the time prescribed by law. State tax return for free The amended return must also include any adjustments to taxable income. State tax return for free   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. State tax return for free It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. State tax return for free Also, report this on line 6 of Form 4562. State tax return for free    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. State tax return for free Revoking an election. State tax return for free   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. State tax return for free The amended return must be filed within the time prescribed by law. State tax return for free The amended return must also include any resulting adjustments to taxable income. State tax return for free Once made, the revocation is irrevocable. State tax return for free When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. State tax return for free In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. State tax return for free You also increase the basis of the property by the recapture amount. State tax return for free Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . State tax return for free If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. State tax return for free Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. State tax return for free For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. State tax return for free If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. State tax return for free Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. State tax return for free Figuring the recapture amount. State tax return for free   To figure the amount to recapture, take the following steps. State tax return for free Figure the depreciation that would have been allowable on the section 179 deduction you claimed. State tax return for free Begin with the year you placed the property in service and include the year of recapture. State tax return for free Subtract the depreciation figured in (1) from the section 179 deduction you claimed. State tax return for free The result is the amount you must recapture. State tax return for free Example. State tax return for free In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. State tax return for free The property is not listed property. State tax return for free The property is 3-year property. State tax return for free He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. State tax return for free He used the property only for business in 2011 and 2012. State tax return for free In 2013, he used the property 40% for business and 60% for personal use. State tax return for free He figures his recapture amount as follows. State tax return for free Section 179 deduction claimed (2011) $5,000. State tax return for free 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. State tax return for free 50   2012 2,222. State tax return for free 50   2013 ($740. State tax return for free 50 × 40% (business)) 296. State tax return for free 20 4,185. State tax return for free 20 2013 — Recapture amount $ 814. State tax return for free 80 Paul must include $814. State tax return for free 80 in income for 2013. State tax return for free If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. State tax return for free Prev  Up  Next   Home   More Online Publications
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Internal Revenue Manual (IRM) Materials Relating to Tax Exempt Bonds

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IRM 4.81.1 TEB Program
This manual section outlines the Tax Exempt Bonds (TEB) program responsibilities in the oversight, compliance and education related to arrangements that involve debt instruments or obligations of States, their political subdivisions and other entities entitled to issue tax-exempt and tax credit obligations.

IRM 4.81.2 Examination Selection
This manual section provides procedures for the TEB classification program through which examinations pertaining to tax-exempt bond transactions are selected in accordance with inventory requirements.

IRM 4.81.5 Examination Process (Sections 1 - 7.6) (Sections 7.7 - 9.6)
This manual section provides the basic techniques that are intended to ensure that a uniform approach is taken when conducting TEB examinations. The following guidance on general examination techniques and procedures used to conduct examinations of tax-exempt bonds and tax credit bonds is provided for TEB examiners. The procedures outlined within this manual are designed to be used as a guide for TEB examiners when examining a Form 8038 series information return and are not intended to be all inclusive.

IRM 4.81.6 Closing Agreements
This manual section sets forth procedures under which the IRS will enter into closing agreements with governmental issuers and other parties to tax-exempt bond transactions with respect to the application of federal tax law requirements under the Code and corresponding Income Tax regulations (the " Regulations" or "ITR" ) in order to correct any compliance failures and preserve the tax-exempt status of the bonds. These procedures seek to ensure consistency of treatment and to encourage increased voluntary compliance throughout the municipal bond industry.

IRM 4.81.7 Bondholder Referrals
This manual section provides guidance for TEB examiners to refer bondholders in the event of an adverse bond examination.

IRM 4.81.10 Quality Review
This manual section provides guidance and procedures for the systematic review of cases for the purpose of measuring quality and to identify examination deficiency trends.

IRM 4.81.11 Referral Program
This manual provides procedures for the TEB Referral Program for Tax Exempt Bonds. It provides guidance for handling information items and referrals received or developed by TEB that relate specifically to compliance issues.

IRM 4.82.1 Examining Qualified Small Issue Bonds
This manual section provides procedures for examining qualified small issue bonds under section 144(a) of the Internal Revenue Code

IRM 7.2.3 Tax Exempt Bonds Voluntary Closing Agreement Program
This manual section provides procedures for the voluntary closing agreement program for tax-exempt bonds and tax credit bonds known as TEB VCAP.

IRM 22.42.1 Tax Exempt Bonds Customer Education and Outreach
This manual section provides procedures for the Tax Exempt Bonds Customer Education & Outreach ("TEB CE&O" ) program.

Page Last Reviewed or Updated: 26-Mar-2014

The State Tax Return For Free

State tax return for free Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. State tax return for free S. State tax return for free Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. State tax return for free Full-time student. State tax return for free Adjusted gross income. State tax return for free More information. State tax return for free Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). State tax return for free Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. State tax return for free Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. State tax return for free You are a member of a religious order who has taken a vow of poverty. State tax return for free You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. State tax return for free See Exemption From Self-Employment (SE) Tax , later. State tax return for free You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. State tax return for free For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. State tax return for free Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. State tax return for free See Ministerial Services , later. State tax return for free Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. State tax return for free However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. State tax return for free For the specific services covered, see Ministerial Services , later. State tax return for free Ministers defined. State tax return for free   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. State tax return for free Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. State tax return for free   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. State tax return for free Employment status for other tax purposes. State tax return for free   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. State tax return for free For income tax or retirement plan purposes, your income earned as an employee will be considered wages. State tax return for free Common-law employee. State tax return for free   Under common-law rules, you are considered either an employee or a self-employed person. State tax return for free Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. State tax return for free For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. State tax return for free   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. State tax return for free However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. State tax return for free Example. State tax return for free A church hires and pays you a salary to perform ministerial services subject to its control. State tax return for free Under the common-law rules, you are an employee of the church while performing those services. State tax return for free Form SS-8. State tax return for free   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. State tax return for free Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. State tax return for free See Ministerial Services , later. State tax return for free However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. State tax return for free Vow of poverty. State tax return for free   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. State tax return for free You do not need to request a separate exemption. State tax return for free For income tax purposes, the earnings are tax free to you. State tax return for free Your earnings are considered the income of the religious order. State tax return for free Services covered under FICA at the election of the order. State tax return for free   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. State tax return for free Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. State tax return for free   The order or subdivision elects coverage by filing Form SS-16. State tax return for free The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. State tax return for free If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. State tax return for free You do not pay any of the FICA tax. State tax return for free Services performed outside the order. State tax return for free   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. State tax return for free   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. State tax return for free You may, however, be able to take a charitable deduction for the amount you turn over to the order. State tax return for free See Publication 526, Charitable Contributions. State tax return for free Rulings. State tax return for free   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. State tax return for free To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. State tax return for free R. State tax return for free B. State tax return for free 1, available at www. State tax return for free irs. State tax return for free gov/irb/2014-1_IRB/ar05. State tax return for free html. State tax return for free Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. State tax return for free However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. State tax return for free Practitioners. State tax return for free   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. State tax return for free State law specifically exempts Christian Science practitioners from licensing requirements. State tax return for free   Some Christian Science practitioners also are Christian Science teachers or lecturers. State tax return for free Income from teaching or lecturing is considered the same as income from their work as practitioners. State tax return for free Readers. State tax return for free   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. State tax return for free Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. State tax return for free Some exceptions are discussed next. State tax return for free Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. State tax return for free If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. State tax return for free Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. State tax return for free 28 during the tax year. State tax return for free However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. State tax return for free Churches and church organizations make this election by filing two copies of Form 8274. State tax return for free For more information about making this election, see Form 8274. State tax return for free Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. State tax return for free This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. State tax return for free Make this choice by filing Form 4029. State tax return for free See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. State tax return for free U. State tax return for free S. State tax return for free Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. State tax return for free Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. State tax return for free S. State tax return for free social security system. State tax return for free To determine your alien status, see Publication 519, U. State tax return for free S. State tax return for free Tax Guide for Aliens. State tax return for free Residents of Puerto Rico, the U. State tax return for free S. State tax return for free Virgin Islands, Guam, the CNMI, and American Samoa. State tax return for free   If you are a resident of one of these U. State tax return for free S. State tax return for free possessions but not a U. State tax return for free S. State tax return for free citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. State tax return for free For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. State tax return for free Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. State tax return for free Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. State tax return for free Even if you have an exemption, only the income you receive for performing ministerial services is exempt. State tax return for free The exemption does not apply to any other income. State tax return for free The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. State tax return for free Ministers Most services you perform as a minister, priest, rabbi, etc. State tax return for free , are ministerial services. State tax return for free These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. State tax return for free You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. State tax return for free A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. State tax return for free Services for nonreligious organizations. State tax return for free   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. State tax return for free Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. State tax return for free   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. State tax return for free Services that are not part of your ministry. State tax return for free   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. State tax return for free The following are not ministerial services. State tax return for free Services you perform for nonreligious organizations other than the services stated above. State tax return for free Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. State tax return for free These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. State tax return for free (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. State tax return for free ) Services you perform in a government-owned and operated hospital. State tax return for free (These services are considered performed by a government employee, not by a minister as part of the ministry. State tax return for free ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. State tax return for free Books or articles. State tax return for free   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. State tax return for free   This rule also applies to members of religious orders and to Christian Science practitioners and readers. State tax return for free Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. State tax return for free The services are considered ministerial because you perform them as an agent of the order. State tax return for free For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. State tax return for free However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. State tax return for free Effect of employee status. State tax return for free   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. State tax return for free In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. State tax return for free This result is true even if you have taken a vow of poverty. State tax return for free Example. State tax return for free Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. State tax return for free They renounce all claims to their earnings. State tax return for free The earnings belong to the order. State tax return for free Pat is a licensed attorney. State tax return for free The superiors of the order instructed her to get a job with a law firm. State tax return for free Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. State tax return for free Chris is a secretary. State tax return for free The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. State tax return for free Chris took the job and gave all his earnings to the order. State tax return for free Pat's services are not duties required by the order. State tax return for free Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. State tax return for free Chris' services are duties required by the order. State tax return for free He is acting as an agent of the order and not as an employee of a third party. State tax return for free He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. State tax return for free Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. State tax return for free Amounts you receive for performing these services are generally subject to SE tax. State tax return for free You may request an exemption from SE tax, discussed next, which applies only to those services. State tax return for free Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. State tax return for free Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. State tax return for free They do not have to request the exemption. State tax return for free Who cannot be exempt. State tax return for free   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. State tax return for free These elections are irrevocable. State tax return for free You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. State tax return for free You elected before 1968 to be covered under social security for your ministerial services. State tax return for free Requesting exemption. State tax return for free    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. State tax return for free More detailed explanations follow. State tax return for free If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. State tax return for free It does not apply to any other self-employment income. State tax return for free Table 2. State tax return for free The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. State tax return for free You file Form 4361, described below under Requesting Exemption—Form 4361 . State tax return for free You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. State tax return for free You file for other than economic reasons. State tax return for free You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). State tax return for free This requirement does not apply to Christian Science practitioners or readers. State tax return for free You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. State tax return for free You establish that the organization is a church or a convention or association of churches. State tax return for free You did not make an election discussed earlier under Who cannot be exempt . State tax return for free You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. State tax return for free Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. State tax return for free The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. State tax return for free If it is approved, keep the approved copy of Form 4361 in your permanent records. State tax return for free When to file. State tax return for free   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. State tax return for free You have net earnings from self-employment of at least $400. State tax return for free Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. State tax return for free The 2 years do not have to be consecutive tax years. State tax return for free    The approval process can take some time, so you should file Form 4361 as soon as possible. State tax return for free Example 1. State tax return for free Rev. State tax return for free Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. State tax return for free He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. State tax return for free However, if Rev. State tax return for free Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. State tax return for free Example 2. State tax return for free Rev. State tax return for free Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. State tax return for free She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. State tax return for free However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. State tax return for free Example 3. State tax return for free In 2011, Rev. State tax return for free David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. State tax return for free In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. State tax return for free Therefore, he had no net self-employment earnings as a minister in 2012. State tax return for free Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. State tax return for free In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. State tax return for free Rev. State tax return for free Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. State tax return for free Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. State tax return for free Death of individual. State tax return for free   The right to file an application for exemption ends with an individual's death. State tax return for free A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. State tax return for free Effective date of exemption. State tax return for free   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. State tax return for free Once the exemption is approved, it is irrevocable. State tax return for free Example. State tax return for free Rev. State tax return for free Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. State tax return for free She files an application for exemption on February 20, 2014. State tax return for free If an exemption is granted, it is effective for 2010 and the following years. State tax return for free Refunds of SE tax. State tax return for free   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. State tax return for free Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. State tax return for free A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. State tax return for free   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. State tax return for free Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. State tax return for free Exception. State tax return for free   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. State tax return for free However, if you pay your benefits back, you may be considered for exemption. State tax return for free Contact your local Social Security Administration office to find out the amount you must pay back. State tax return for free Eligibility requirements. State tax return for free   To claim this exemption from SE tax, all the following requirements must be met. State tax return for free You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . State tax return for free As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. State tax return for free You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. State tax return for free The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. State tax return for free Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. State tax return for free The sect or division must complete part of the form. State tax return for free The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. State tax return for free If it is approved, keep the approved copy of Form 4029 in your permanent records. State tax return for free When to file. State tax return for free   You can file Form 4029 at any time. State tax return for free   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. State tax return for free See Effective date of exemption next for information on when the newly approved exemption would become effective. State tax return for free    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. State tax return for free Effective date of exemption. State tax return for free   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. State tax return for free (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. State tax return for free )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. State tax return for free You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. State tax return for free The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. State tax return for free Refunds of SE tax paid. State tax return for free    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. State tax return for free For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. State tax return for free Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. State tax return for free Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. State tax return for free A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. State tax return for free If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. State tax return for free Information for employers. State tax return for free   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. State tax return for free   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. State tax return for free Form W-2. State tax return for free   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. State tax return for free ” Do not make any entries in boxes 3, 4, 5, or 6. State tax return for free Forms 941, 943, and 944. State tax return for free   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. State tax return for free Instead, follow the instructions given below. State tax return for free Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. State tax return for free Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. State tax return for free Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. State tax return for free Effective date. State tax return for free   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. State tax return for free The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. State tax return for free Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. State tax return for free Regular method. State tax return for free Nonfarm optional method. State tax return for free You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. State tax return for free Blank worksheets are in the back of this publication, after the Comprehensive Example. State tax return for free Regular Method Most people use the regular method. State tax return for free Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. State tax return for free Then, subtract your allowable business deductions and multiply the difference by 92. State tax return for free 35% (. State tax return for free 9235). State tax return for free Use Schedule SE (Form 1040) to figure your net earnings and SE tax. State tax return for free If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. State tax return for free 35% (. State tax return for free 9235). State tax return for free Do not reduce your wages by any business deductions when making this computation. State tax return for free Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. State tax return for free If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. State tax return for free Amounts included in gross income. State tax return for free   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. State tax return for free , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. State tax return for free This amount is also subject to income tax. State tax return for free   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. State tax return for free Example. State tax return for free Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. State tax return for free The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. State tax return for free His church owns a parsonage that has a fair rental value of $12,000 per year. State tax return for free The church gives Pastor Adams the use of the parsonage. State tax return for free He is not exempt from SE tax. State tax return for free He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. State tax return for free The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. State tax return for free Overseas duty. State tax return for free   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. State tax return for free S. State tax return for free citizen or resident alien serving abroad and living in a foreign country. State tax return for free   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. State tax return for free Example. State tax return for free Diane Jones was the minister of a U. State tax return for free S. State tax return for free church in Mexico. State tax return for free She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. State tax return for free The United States does not have a social security agreement with Mexico, so Mrs. State tax return for free Jones is subject to U. State tax return for free S. State tax return for free SE tax and must include $35,000 when figuring net earnings from self-employment. State tax return for free Specified U. State tax return for free S. State tax return for free possessions. State tax return for free    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. State tax return for free Also see Residents of Puerto Rico, the U. State tax return for free S. State tax return for free Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. State tax return for free S. State tax return for free Citizens and Resident and Nonresident Aliens. State tax return for free Amounts not included in gross income. State tax return for free   Do not include the following amounts in gross income when figuring your net earnings from self-employment. State tax return for free Offerings that others made to the church. State tax return for free Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. State tax return for free Pension payments or retirement allowances you receive for your past ministerial services. State tax return for free The rental value of a parsonage or a parsonage allowance provided to you after you retire. State tax return for free Allowable deductions. State tax return for free   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. State tax return for free These are ministerial expenses you incurred while working other than as a common-law employee of the church. State tax return for free They include expenses incurred in performing marriages and baptisms, and in delivering speeches. State tax return for free Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. State tax return for free   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . State tax return for free Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. State tax return for free Do not complete Schedule C or C-EZ (Form 1040). State tax return for free However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. State tax return for free Employee reimbursement arrangements. State tax return for free   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. State tax return for free Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. State tax return for free Accountable plans. State tax return for free   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. State tax return for free Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. State tax return for free You must adequately account to your employer for these expenses within a reasonable period of time. State tax return for free You must return any excess reimbursement or allowance within a reasonable period of time. State tax return for free   The reimbursement is not reported on your Form W-2. State tax return for free Generally, if your expenses equal your reimbursement, you have no deduction. State tax return for free If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. State tax return for free Nonaccountable plan. State tax return for free   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. State tax return for free In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. State tax return for free Excess reimbursements you fail to return to your employer. State tax return for free Reimbursement of nondeductible expenses related to your employer's business. State tax return for free   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. State tax return for free Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. State tax return for free   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. State tax return for free Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. State tax return for free If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. State tax return for free Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. State tax return for free The tax rate for the social security part is 12. State tax return for free 4%. State tax return for free In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. State tax return for free This tax rate is 2. State tax return for free 9%. State tax return for free The combined self-employment tax rate is 15. State tax return for free 3%. State tax return for free Additional Medicare Tax. State tax return for free   Beginning in 2013, a 0. State tax return for free 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. State tax return for free Medicare wages and self-employment income are combined to determine if income exceeds the threshold. State tax return for free A self-employment loss is not considered for purposes of this tax. State tax return for free RRTA compensation is separately compared to the threshold. State tax return for free For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. State tax return for free Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. State tax return for free In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. State tax return for free You may use the nonfarm optional method if you meet all the following tests. State tax return for free You are self-employed on a regular basis. State tax return for free You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. State tax return for free The net earnings can be from either farm or nonfarm earnings or both. State tax return for free You have used this method less than 5 prior years. State tax return for free (There is a 5-year lifetime limit. State tax return for free ) The years do not have to be consecutive. State tax return for free Your net nonfarm profits were: Less than $5,024, and Less than 72. State tax return for free 189% of your gross nonfarm income. State tax return for free If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. State tax return for free Table 3. State tax return for free Figuring Nonfarm Net Earnings IF your gross nonfarm income is . State tax return for free . State tax return for free . State tax return for free THEN your net earnings are equal to . State tax return for free . State tax return for free . State tax return for free $6,960 or less Two-thirds of your gross nonfarm income. State tax return for free More than $6,960 $4,640. State tax return for free Actual net earnings. State tax return for free   Multiply your total earnings subject to SE tax by 92. State tax return for free 35% (. State tax return for free 9235) to get actual net earnings. State tax return for free Actual net earnings are equivalent to net earnings under the “Regular Method. State tax return for free ” More information. State tax return for free   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. State tax return for free Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. State tax return for free Note. State tax return for free For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. State tax return for free Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. State tax return for free Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. State tax return for free , in addition to your salary. State tax return for free If the offering is made to the religious institution, it is not taxable to you. State tax return for free Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. State tax return for free However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. State tax return for free For more information, see Publication 526. State tax return for free Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. State tax return for free Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. State tax return for free This exclusion applies only for income tax purposes. State tax return for free It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. State tax return for free Designation requirement. State tax return for free   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. State tax return for free It must designate a definite amount. State tax return for free It cannot determine the amount of the housing allowance at a later date. State tax return for free If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. State tax return for free   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. State tax return for free The local congregation must officially designate the part of your salary that is a housing allowance. State tax return for free However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. State tax return for free Rental allowances. State tax return for free   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. State tax return for free   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. State tax return for free Fair rental value of parsonage. State tax return for free   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. State tax return for free However, the exclusion cannot be more than the reasonable pay for your services. State tax return for free If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. State tax return for free Example. State tax return for free Rev. State tax return for free Joanna Baker is a full-time minister. State tax return for free The church allows her to use a parsonage that has an annual fair rental value of $24,000. State tax return for free The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. State tax return for free Her actual utility costs during the year were $7,000. State tax return for free For income tax purposes, Rev. State tax return for free Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). State tax return for free She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). State tax return for free Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). State tax return for free Home ownership. State tax return for free   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. State tax return for free Excess rental allowance. State tax return for free   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. State tax return for free   Include in the total on Form 1040, line 7. State tax return for free On the dotted line next to line 7, enter “Excess allowance” and the amount. State tax return for free You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. State tax return for free However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). State tax return for free Retired ministers. State tax return for free   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. State tax return for free However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. State tax return for free Teachers or administrators. State tax return for free   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. State tax return for free However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. State tax return for free    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. State tax return for free In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. State tax return for free   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. State tax return for free Theological students. State tax return for free   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. State tax return for free Traveling evangelists. State tax return for free   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. State tax return for free You are an ordained minister. State tax return for free You perform ministerial services at churches located away from your community. State tax return for free You actually use the rental allowance to maintain your permanent home. State tax return for free Cantors. State tax return for free   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. State tax return for free Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. State tax return for free See Members of Religious Orders , earlier, under Social Security Coverage. State tax return for free Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. State tax return for free S. State tax return for free possession. State tax return for free Publication 54 discusses the foreign earned income exclusion. State tax return for free Publication 570, Tax Guide for Individuals With Income From U. State tax return for free S. State tax return for free Possessions, covers the rules for taxpayers with income from U. State tax return for free S. State tax return for free possessions. State tax return for free You can get these free publications from the Internal Revenue Service at IRS. State tax return for free gov or from most U. State tax return for free S. State tax return for free Embassies or consulates. State tax return for free Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. State tax return for free Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. State tax return for free You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). State tax return for free You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. State tax return for free See Publication 529 for more information on this limit. State tax return for free However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). State tax return for free Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. State tax return for free You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. State tax return for free Exception. State tax return for free   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. State tax return for free Figuring the allocation. State tax return for free   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. State tax return for free    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. State tax return for free Example. State tax return for free Rev. State tax return for free Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. State tax return for free He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. State tax return for free $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. State tax return for free Rev. State tax return for free Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. State tax return for free Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. State tax return for free   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. State tax return for free The statement must contain all of the following information. State tax return for free A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. State tax return for free ) plus the amount. State tax return for free A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. State tax return for free A list of each item of otherwise deductible ministerial expenses plus the amount. State tax return for free How you figured the nondeductible part of your otherwise deductible expenses. State tax return for free A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. State tax return for free   See the attachments prepared for the Comprehensive Example , later. State tax return for free Following the example, you will find blank worksheets for your own use. State tax return for free Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. State tax return for free If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. State tax return for free See the Instructions for Form 1040 to figure your deduction. State tax return for free The following special rules apply to the self-employed health insurance deduction. State tax return for free You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. State tax return for free You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. State tax return for free The deduction cannot exceed your net earnings from the business under which the insurance plan is established. State tax return for free Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. State tax return for free More information. State tax return for free   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. State tax return for free Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. State tax return for free This is an income tax deduction only, on Form 1040, line 27. State tax return for free Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. State tax return for free Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. State tax return for free You must pay the tax as you earn or receive income during the year. State tax return for free An employee usually has income tax withheld from his or her wages or salary. State tax return for free However, your salary is not subject to federal income tax withholding if both of the following conditions apply. State tax return for free You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. State tax return for free Your salary is for ministerial services (see Ministerial Services , earlier). State tax return for free If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. State tax return for free You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. State tax return for free Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. State tax return for free Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. State tax return for free See Form 1040-ES for the different payment methods. State tax return for free The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. State tax return for free For more information, see chapter 2 of Publication 505. State tax return for free If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. State tax return for free Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. State tax return for free Table 4. State tax return for free 2013 Filing Requirements for Most Taxpayers IF your filing status is . State tax return for free . State tax return for free . State tax return for free AND at the end of 2013 you were* . State tax return for free . State tax return for free . State tax return for free THEN file a return if your gross income** was at least . State tax return for free . State tax return for free . State tax return for free single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. State tax return for free ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). State tax return for free Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). State tax return for free If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. State tax return for free Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). State tax return for free Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. State tax return for free But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. State tax return for free *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. State tax return for free Additional requirements. State tax return for free   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. State tax return for free 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). State tax return for free Self-employment tax. State tax return for free   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. State tax return for free   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. State tax return for free You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). State tax return for free You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. State tax return for free However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). State tax return for free Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. State tax return for free Note. State tax return for free For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. State tax return for free You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. State tax return for free Exemption from SE tax. State tax return for free   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). State tax return for free Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. State tax return for free However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. State tax return for free    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). State tax return for free Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. State tax return for free More information. State tax return for free   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. State tax return for free Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. State tax return for free You generally can deduct your contributions to the plan. State tax return for free Your contributions and the earnings on them are not taxed until they are distributed. State tax return for free Retirement plans for the self-employed. State tax return for free   To set up one of the following plans you must be self-employed. State tax return for free SEP (simplified employee pension) plan. State tax return for free SIMPLE (savings incentive match plan for employees) plan. State tax return for free Qualified retirement plan (also called a Keogh or H. State tax return for free R. State tax return for free 10 plan). State tax return for free   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. State tax return for free See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. State tax return for free This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. State tax return for free   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. State tax return for free You are not a self-employed person for purposes of setting up a retirement plan. State tax return for free This result is true even if your salary is subject to SE tax. State tax return for free   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. State tax return for free   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). State tax return for free Individual retirement arrangements (IRAs). State tax return for free   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. State tax return for free Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). State tax return for free   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. State tax return for free You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. State tax return for free   If you contribute to a traditional IRA, your contribution may be deductible. State tax return for free However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). State tax return for free   For more information on IRAs, see Publication 590. State tax return for free Tax-sheltered annuity plans. State tax return for free   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. State tax return for free For more